development report final 2009

Growth for development

CDC Group plc Development Report 2008

(1,1) -1- CDC impact cover aw.indd 29/6/09 1:23:42 pm(1,1) -1- CDC impact cover aw.indd 29/6/09 1:23:42 pm

Contents

Introduction2 Statement from the Chief Executive 4 Statement from the Chair

of CDC’s Best Practice and Development Committee

Chapter

1CDC’s mandate6 Capital for private sector

development in poor countries

Chapter

2CDC’s evolution 14 A new, intermediated,

model for development finance

Chapter

3Promoting responsible investment and business practices20 CDC’s new Investment Code

on environmental, social andgovernance (ESG) matters

Chapter

4Measuring the development effects of CDC’s investments26 CDC’s new monitoring and

evaluation (M&E) system 28 CDC’s M&E work 2008:

12 completed evaluations

Chapter

5Development highlights in 200832 Financial performance 34 Economic performance: employment

and generation of public revenues 40 ESG performance and serious

incidents41 Private sector development

Chapter

6Regional reviews46 Sub-Saharan Africa 54 Asia 62 Other regions – Latin America and

North Africa

Chapter

7Industry sector reviews and SME funds69 Focus industry sector reviews:

69 Energy & utilities72 Information and communication

technologies (ICT)74 Financial services 76 Microfinance

78 Brief industry sector reviews:78 Mining78 Industry & materials79 Agribusiness 79 Consumer goods & services 80 Healthcare 80 Infrastructure 81 Cleaner technologies

82 SME funds

Appendices86 Appendix 1: CDC’s Investment Code 91 Appendix 2: Performance indicators

for CDC’s monitoring and evaluation system

94 Footnotes and data disclaimer

IBC: CDC’s fund managers

Our missionis to generate wealth, broadlyshared, in emerging markets,particularly in poorer countries,by providing capital forinvestment in sustainable andresponsibly managed privatesector businesses.

Our targetis to make more than 75% of new investments in lowincome countries* and toinvest more than 50% of ourcapital in sub-Saharan Africa.

* Those with an annual gross national income (GNI) per capita of less than US$905.

2 CDC Growth for development

Statement from the Chief Executive

I am delighted to present CDC’s firstreport on the development effects of ourinvestments. This document is just asimportant as our annual report andaccounts and marks a major milestone for CDC. It is the first of its kind for CDC,and sets out some of the broaderdevelopment contributions of CDC’sinvestments across a range of economicsectors in the poor countries of the world.Going forward, we will publish reportsevery year which will continue to evolvewith further analysis of the contributionsCDC’s capital makes to development.

No country in the world has been able tosustain poverty reduction and increaseincome levels without economic growth.Flourishing businesses of all kinds andsizes are essential for that growth: theyemploy and train people, pay taxes thatallow governments to finance publicservices and infrastructure, and invest in research and development. Thrivingbusinesses provide the poor withincreased access to new and higherquality goods and services at competitiveprices as companies reach scale in localproduction and sales. All industry sectorsand companies of all sizes contribute topoverty reducing growth.

CDC has supported promising businessesin poor countries for 60 years, helpingthem to grow and improve upon theirpractices in terms of how they manageenvironmental, social and governance(ESG) matters. We now invest throughprivate equity, mezzanine and other funds.These 127 funds, managed by 59 fundmanagers, have in turn invested CDC’scapital in 681 different businesses indeveloping countries. Wholly owned bythe UK government, we are an importantpart of the Department for International

Development’s (DFID) strategy of helpingto build a thriving private sector in thedeveloping world to reduce poverty. Not least in the light of the current creditcrisis, CDC’s commitment to continue to provide capital to private sectorbusinesses in developing countries is of critical importance to help promoteeconomic growth. CDC is able to makethis commitment because it hassignificant resources at its disposal due tothe financial success of the last five years.

Responsible investment and businesspractices are critical to ensure thatinvestments in poor countries generatethese development effects withoutdestroying the environment and whileensuring safe and fair working conditionsfor employees. CDC’s new InvestmentCode, published in 2008, is a keyinstrument for us to ensure consistentadherence to minimum requirements forresponsible business operations in linewith international good practices. Privateequity funds are long-term investmentvehicles and are therefore very well suitedto promote improvements in corporateESG practices over the investment periodfor the benefit of the environment andlocal populations. According to ourevaluation work last year, 86% of theportfolio companies covered by theevaluations made improvements on ESG practices during the fund managers’investment period.

Historically, CDC has invested inbusinesses in the emerging markets of Africa, Asia and Latin America. A fundamental part of CDC’s remit is toinvest where other investors are reluctantto do so because of the perceived highrisks of emerging market investments.Some countries, most notably China,

are becoming more attractive to privatesector investors as well as richer.Therefore, we agreed a new investmentpolicy with DFID last year to ensure thatwe focus CDC’s investments in thecountries where our capital is the mostneeded. From 2009, we will focus ourcommitments on the poorest countries,with a concentration on sub-SaharanAfrica and South Asia.

CDC’s model for development financesince the spin-outs of Actis and Aureos is exciting and innovative from two keyperspectives. First, we leverage additionalthird party capital to be investedalongside CDC in developing countries.For example, Actis has successfully raised US$2.9bn over the last four years.Secondly, our investments with 59 fundmanagers also strengthen localinvestment capacity and promote moreefficient capital markets where these areoften weak. All except one of CDC’s 52 private equity fund managers have local offices in 34 different developingcountries. 42% of our fund managers aremanaging private equity funds for the firsttime. CDC’s willingness to engage withand support new fund managers oftenacts as a stamp of approval for otherinvestors to follow suit. 83% of the fundmanagers covered by our evaluation workin 2008 raised successor funds, withUS$1.1bn in new capital.

I have seen first hand how CDC’s capitaland our fund managers benefitbusinesses and the livelihoods of peoplein poor countries. Across our portfolio,CDC’s fund managers are helpingcompanies build value by improvingenvironmental management, labour andworking conditions, health and safetystandards, and corporate governance.

CDC and the fund managers that investour capital have helped companies acrossAfrica introduce HIV/AIDS programmesfor their employees, mining companiesimprove environmental safeguards andhealth and safety standards, serviceproviders enforce minimum wagepayments, and food retailers andproducers meet international food safety standards. Of course, with such alarge portfolio of companies whichoperate in some difficult environments,things don’t always go according to plan, and we do have instances ofbusiness failure, governance frailty andenvironmental concern. However, wework hard with our fund managers so thatthese are identified and rectified as soonas practicable.

At all levels of business, from the small and medium enterprises to larger corporations, entrepreneurs are transforming their businesses byadopting good commercial disciplines to help them grow. 82% of the portfoliocompanies included in CDC’s evaluationwork last year increased turnover and58% increased profitability. We know that our portfolio companies have paid US$2.2bn in annual taxes to theirnational governments.

From our evaluation work in 2008, wefound that 76% of companies showed anincrease in employment with 30,000 newjobs created. In the countries in which weinvest, the United Nations estimates thateach employed person supportsapproximately four others. On that basis,we estimate that CDC’s 681 portfoliocompanies are supporting well over 3 million people – a major contribution to development in the poorest countriesof the world. Helping businesses to grow

in a sustainable manner and, in doing so,creating opportunities for the poor to helpthemselves and their families out ofpoverty, is at the heart of all of CDC’sinvestment activities.

Richard LaingChief Executive

Statement from the Chief Executive 3


Statement from the Chair of CDC’s Best Practice and Development Committee

• investments are profitable, thusreturning capital to CDC for furtherinvestments and demonstrating to otherinvestors that profitable investmentscan indeed be made in poor countrymarkets where they are traditionallyreluctant to invest;

• investments provide benefits for thelocal economy, in terms of commerciallysuccessful growing businesses thatgenerate employment and tax revenues;

• fund managers and their portfoliocompanies adhere to responsibleinvestment and business practices from the environmental, social andgovernance (ESG) perspectives; and

• broader private sector developmenteffects are realised as appropriate andrelevant, from privatisations of formerlystate-owned companies in China todriving the mobile telephony revolutionacross Africa.

CDC's Best Practice and DevelopmentCommittee comprises myself as Chairand three other non-executive directors. It met four times during 2008 and reviews and authorises all monitoring and evaluation work. Importantly, it isindependent of the executives whocomplete the evaluations. Seriousincidents are also reported to thisCommittee (and the board) and we ensurethat appropriate action is taken in response.

We will continue our work to strengthenCDC’s monitoring and evaluation systemsduring 2009 as well as the way in whichwe follow – and require our fund managersto follow – our ESG guidelines, focusingparticularly on companies in high-risksectors. The governance influence which comes with private equity is oftenconsiderable. Our fund managers usuallyhave a significant impact in turning theirportfolio companies into very effectiveand often innovative entities.

Over the following pages, we tell the storyof CDC’s part in supporting private sectordevelopment and economic growthacross our investment geographies andthroughout different sectors of theeconomy where our portfolio companiesoperate. We have focused particularly on energy and utilities, information andcommunication technologies, financialservices, microfinance and small and

medium size enterprise (SME) funds for thisreport. We will provide in depth reviews ofother sectors in future publications. Ourreport includes key, summary findingsfrom the 12 evaluation reports that wecompleted last year. Our work covered119 of CDC’s 681 portfolio companiesand produced promising findings as wellas highlighting issues for further efforts.

During 2009, we will increase ourevaluation work, with 20 new evaluationsunder way. Seven of these will becompleted by external consultants, whowill provide an important independentcomplement to CDC’s own evaluationwork. We will also commission anindependent audit of CDC’s processes to implement our new Investment Code.

Finally, during 2009, we will commissionwork on how businesses in developingcountries can assess risks and realiseopportunities associated with climatechange, as well as how different types ofbusinesses can improve their policies andpractices from the gender perspective.

The long run impact on poverty reductioncomes from helping to build globallycompetitive businesses in poor parts ofthe world. CDC’s “intelligent risk capital”attracts co-investment from other equitycapital – often genuinely private – as aconsequence of the CDC reputation. This enhanced quantum of risk capital inturn attracts pools of loan capital whichcan benefit considerably from investingalongside CDC’s risk capital and the skilledgovernance of CDC’s fund managers.

Prof. Jonathan KyddChair of CDC’s Best Practice and Development Committee

I have been a board member of CDC forten years, participating in its evolutionfrom a direct investor and lender in the1990s, through the creation of Aureos in2001 and Actis in 2004, to its successfulprogression as a leading private equityfund-of-funds investor today. It has beenan exciting journey, with several lessonsalong the way on how to ensure that thepublic capital entrusted to us delivers thehighest possible development value.

During the 2004-07 period, CDC focusedon building its new, indirect investmentbusiness model. This model is understoodand trusted in capital markets and hastherefore been very effective in attractingprivate risk capital into poorer countries in line with our shareholders objective. We have been investing with increasingnumbers of new fund managers and thusattracting further third party capital topoor countries, as well as strengtheninglocal investment capacities where capitalmarkets are still very weak. In 2008, wemade a major investment in strengthenedmonitoring and evaluation systems andprocesses to capture the developmenteffects of CDC’s investments.

As an indirect investor, with all the benefitsthis new business model brings todeveloping countries, CDC has to bepractical and realistic about what data toexpect from fund managers. We focus ourrequests on key information to ensure that:

CDC’s mandate

Chapter Private sector development is the engine for economic growthand poverty alleviation. CDC provides capital for fund managersto invest in new and growing businesses that drive suchdevelopment. CDC’s investments are focused on the poorcountries of the world, where there is a shortage of capital.CDC’s capital is invested in companies in 74 developingcountries with a focus on sub-Saharan Africa.


Chapter 1 – CDC’s mandateCapital for private sector development in poor countries

Private sector development: an engine for economic growth and poverty alleviation

Rwanda grew by 11% in 2008, eventhough most of the world suffered from arecession during the latter half of the year.Aid as a percentage of Rwanda’s grossdomestic product (GDP) has been cut byhalf over the past decade. Wages in keysectors have risen by more than 20% on an annual basis without triggeringinflation. This economic progress isimpressive for one of the poorestcountries in the world with a per capitagross national income (GNI) of aboutUS$260 per year and a recent history of violent political turmoil. Rwanda’spresident Paul Kagame is hopeful thateconomic growth through private sectorled development will change the lives of Rwandans within a generation.

The aspirations of Rwanda, a small andpoor landlocked African country, followthe successful examples of countries likeChina and Malaysia, where private sectorled growth has fuelled a revolution inimproved living standards and povertyalleviation over the last four decades.South Korea pioneered the Asian privatesector led growth boom in the 1960s and 1970s, and has now entered theprivileged group of high-incomeOrganization for Economic Cooperationand Development (OECD) countries.

Sustained economic growth in China of around 8% over the past 20 years haslifted more than 400 million people out of poverty. Conversely, no country hassucceeded in reducing poverty withouteconomic growth.

One fifth of the world’s population, some1.2 billion people, still live in absolutepoverty, surviving on less than US$1 perday. There is a wide consensus amongpolicy makers and economists thatgrowth is the most important factor insustainable poverty reduction. Researchshows that growth accounts for more than80% of poverty reduction in the long run.6, 7

A World Bank study found that theexperiences of 19 low-income countriessuggest that 1% of growth in per capitaGDP is associated with a 1.3% fall in therate of extreme poverty and a 0.9% fall inthe proportion of people surviving on lessthan US$2 per day.8

Any successful strategy for povertyalleviation must include measures topromote rapid and sustained economicgrowth. Commercially successfulbusinesses provide employmentopportunities which are critically neededin poor countries that often suffer fromchronically high unemployment rates.More than 80% of Africa’s labour forcegain their livelihood through work insubsistence agriculture and the large,informal economy, often through small

More than 25 investments

15–25 investments

6–15 investments

1–5 investments

CDC’s investments by year end 2008: 681 companies in 74 countries

CDC’s capital is invested incompanies in 74 developingcountries1,2 throughout the world

£928m CDC portfolio value

681 portfolio companies

59 fund managers

127 funds

“The cycle of aid and povertyis durable: as long as poornations are focused onreceiving aid, they will not workto improve their economies.Nobody owes Rwandansanything. Governmentactivities should focus onsupporting entrepreneurshipbecause it unlocks people’sminds, fosters innovation andenables people to exercisetheir talents. We have a clearstrategy to export based onsustainable competitiveadvantages. We sell coffeenow for high prices to theworld’s most demandingpurchasers; our tourismexperience attracts the bestcustomers in the world andmarket research reveals thatperceptions of Rwandan teaare improving. We belong to a new school of developmentthinkers and entrepreneurs,with those who demonstratethey have not just a heart, but also a mind for the poor.”

Paul Kagame, President of Rwanda,comments in the Financial Times, 8 May 2009.

Chapter 1 – CDC’s mandate 7

sales activities. Profitable and growingbusinesses also generate increasing taxrevenues that allow low income countrygovernments to fund their owndevelopment programmes, throughinvestments in primary education, healthservices and infrastructure.

Successful private sector businessesbring a range of benefits to the people in poor countries in terms of expandedaccess to goods, services andinfrastructure. Nearly 75% of Africans donot have power in their homes. 700 millionpeople in South Asia similarly lack accessto electricity. A large number of people insub-Saharan Africa and South Asia stilllack access to modern communicationtechnologies and are therefore excludedfrom benefits arising from connectivity tolocal and international markets andaccess to banking and healthcareservices now provided over mobilephones and the internet. Quality productsand services at affordable prices are still inlow supply in many low income countries,particularly in rural areas. Oil and naturalresource exploration, if managedsustainably, can be a major driver behindincreased income levels and livingstandards. Agribusiness is the singlelargest source of employment in poorcountries, accounting for 64% ofemployment and 34% of GDP.9Agribusiness and forestry can bring majorbenefits for economic growth andemployment creation, especially in ruralareas where job opportunities are usuallyscarce. Sustainable agribusiness andforestry can also have important positiveeffects to counteract climate change.Industry accounts for a large and fast

growing share of developing countries’economies and often provides relativelysecure and well paid jobs.

Businesses across all economic sectorsinvest in research and development withnew innovations to address market needs.They also provide training opportunitiesfor their workforce to improve skills andproductivity.

One of the most serious barriers tosustainable economic growth in poorcountries is the lack of capital available for new and expanding businesses. Whileinvestors from developed countries areincreasingly discovering opportunities inChina, Latin America and the major Indiancities, commercial investors still shy awayfrom the poorer emerging markets insub-Saharan Africa, rural India, and otherpoor country markets which are seen asrisky, unknown and problematic.

Total accumulated global foreign directinvestment amounts to about US$15.2trillion. Foreign direct investment indeveloping economies makes up anestimated US$4.2 trillion of that amount,with a relatively small proportion,US$250bn, invested in sub-SaharanAfrica.10 With more than 80% of theworld’s population, developing economieshost only a quarter of global foreign directinvestment stock. Sub-Saharan Africaaccounts for one seventh of the world'spopulation, but has received less than 1% of foreign direct investment.

Share of people living on less than US$1.25 per day: actual and estimated progress towards the United Nations’Millennium Development Goal (MDG) to eradicate extreme poverty*

Sub-Saharan Africa (%)

Poverty rate at US$1.25 per dayProjected poverty ratePath to MDG

Source: World Bank estimates.

Europe & Central Asia (%)

Middle East & North Africa (%) South Asia (%)

East Asia & Pacific (%) Latin America & Caribbean (%)

*To halve, between 1990 and 2015, the proportion of people whose income is less than US$1 per day.

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CDC’s mandate is to be part of the global effort to bridge this shortage of investments benefiting poor countries,with a particular focus on the underservedcountries in sub-Saharan Africa.

Annual global foreign direct investmentpeaked in 2007, with a total of US$1.9trillion. With the financial crisis in 2008,foreign direct investment flows wereestimated to have declined by 15%, andare expected to further decrease during2009.11 The OECD 2009 edition of AfricanEconomic Outlook indicates that foreigndirect investment decreased by about10% in 2008 for the 47 African countriescovered by the report.12 The UnitedNations’ agency UNCTAD predicts thatthe amount of foreign direct investmentreceived by developing nations willdecrease during 2009 as well as during 2010.10

As a long-term investor in emergingmarkets, CDC’s capital is needed morethan ever during the current globaleconomic downturn.

CDC’s mandate: capital for development

CDC is a development finance institutionwholly owned by the UK government.Supporting the private sector is a keyelement of the Department forInternational Development’s (DFID)poverty reduction strategy and its privatesector programme, and complementsDFID’s aid and humanitarian supportprogrammes. CDC is a core part of DFID’s strategy to support private sectordevelopment in its partner countries. CDC invests its capital so as to attractfurther investors to poor country markets.

Responsible investment and businesspractices are crucial to ensure thatinvestments in poor countries generatethese development effects withoutdestroying the environment and whileensuring safe and fair working conditionsfor employees. CDC’s mandate is toprovide capital for investment insustainable and responsibly managedprivate sector businesses and by doing so promote economic growth whichultimately drives a reduction in poverty.

International best practice onenvironmental, social and governancematters are continually evolving and CDC aims to be at the forefront of bestpractice. In 2008, CDC updated itsstandards for responsible investment and business practices in light ofdevelopments in international bestpractice. The resulting new InvestmentCode on environmental, social andgovernance matters (ESG) is appended to this report and featured on CDC’swebsite, www.cdcgroup.com.

CDC’s mandate continued

CDC’s investment universe under the investment policy for 2009-2013

Low income1

Middle income2

“If we stop thinking of thepoor as victims or as aburden and start recognisingthem as resilient and creativeentrepreneurs and valueconscious consumers, a whole new world ofopportunity will open up.”

C.K. Prahalad, author of “The Fortune at the Bottom of the Pyramid”.


CDC’s business model: capital and investor know-how to assistbusinesses in developing countries to grow

CDC is not a direct investor but deploysits capital through 59 different fundmanagers investing in 127 funds. CDC’sfund managers in turn invest in promisingcompanies in poor countries, providingthese companies with access to newcapital that allows them to expand andimprove upon their businesses. Otherinvestors, both public and private, investalongside CDC with these fund managers.This creates an increasing pool of capitalavailable for fund managers to invest inbusinesses in poor countries.

In recent years, CDC has largelycommitted capital to fund managers thatmake private equity investments. Privateequity funds provide CDC and otherinvestors with an ownership share in thebusinesses in which fund managersinvest. That capital is recovered whensuch a shareholding is sold several yearslater. Private equity is a long-terminvestment vehicle and as such is ideallysuited to bring capital to poor countriesand to help commercially viablebusinesses in these countries realise theirgrowth potential in a sustainable way, withsubsequent benefits for economic growthand poverty reduction.

The private equity investments of CDC’sfund managers usually extend for severalyears. This provides ample time forentrepreneurs to realise corporate growth opportunities and bring aboutimprovements in business practices.CDC’s fund managers play a hands-onrole in nurturing the companies in theirportfolios and add value through businessexpertise and the promotion ofresponsible business practices. In thisway, the private equity investments ofCDC’s fund managers have a directdevelopment benefit in increasing thelikelihood of successful and sustainablecorporate growth. CDC’s fund managersassist their portfolio companies in avariety of ways, including improvingcorporate governance, a crucial part ofthis being promoting high environmentaland social standards.

Typically after three to seven years ofbusiness improvements, CDC’s fundmanagers sell their investments inportfolio companies. This can happenthrough an initial public offering in thelocal stock market, a trade sale to anothercompany in the same sector, a newinvestment by another investor, or, in some cases, an investment by thecompany’s own management. Profits from these sales are returned by the fundmanager to CDC and other investors. CDC reinvests the proceeds from theselong-term investments in new funds, which in turn deploy CDC’s capital with new companies in need of growth capital.Capital that is no longer needed bybusinesses, which have found otherinvestors, can thus be redeployed in new companies in need of growth capital.

CDC capital CDC invests with fund managers.

Fund managersCDC’s fund managers invest incompanies in developing countries.

Portfolio companiesPortfolio companies expand andimprove upon their businesses.

Economic growthFund managers sell portfolio companies and return proceeds to CDC and other investors. Proceeds are reinvested by CDC.

Mobilising other people’s money Third party capital isinvested alongside CDC’s capital

4

3 1

2

CDC’s business model: capital for investment in growing businesses in developing countries

1

2

3

4

CDC’s capital accounts forbetween 3% and 100% ofany one fund. The averageis 26%

CDC’s fund managersacquire both small and large stakes in companies


Profitable investments are likely tocontribute to economic growth, andthrough growth to poverty reduction.13

The links between investments, growthand poverty reduction are well establishedby academic research. Investments havebeen referred to as “the foundation of all models of economic growth”.14 Bydemonstrating profitable investments inpoor countries, CDC can encourage otherinvestors to deploy their capital in theseemerging markets also.

At the end of 2008, CDC had a portfoliovalue of £928m invested in 681companies. CDC’s new investments,through its fund managers, in 2008amounted to £436m, a record amount forCDC. In light of the financial crisis andsubsequent slowdown in investmentactivities, it is essential for CDC to ensurethat its capital continues to supportpromising businesses in poor countries. In the future, CDC plans to complementits private equity fund investments withprovision of debt capital through financialintermediaries to companies in sub-Saharan Africa, as such capital is in shortsupply especially in the poorest countries.This allows CDC to invest in countries thatare well equipped to attract private equityinvestment, while making debt capitalavailable to countries where equity is stilllargely unestablished.

CDC’s investments focus: the poorestcountries and sub-Saharan Africa

Sub-Saharan Africa has the highestproportion of people living in poverty, with51% of the population, some 400 millionpeople, below the poverty line. Almost30% of all poor people in the world live insub-Saharan Africa. More than 60% ofNigerians, almost 90 million people, livebelow the poverty line. In Tanzania, morethan 80% of the population, 30 millionpeople, are poor. South Africa, a relativelyprosperous country by African standards,is home to 10 million people living inabsolute poverty, representing 20% of thepopulation. South Asia accounts for morethan 40% of all poor people in the world.Almost 600 million people in the regionlive below the poverty line. The majority ofthe poor in South Asia reside in rural India,where 340 million people, 44% of the ruralpopulation, still live in poverty. Rural Chinais home to 200 million poor people,accounting for 15% of the world’s poor,while the urban centres of the rapidlygrowing Chinese economy enjoy muchhigher living standards.15 By comparison,other emerging markets such as LatinAmerica, North Africa and Eastern Europehave much lower poverty rates as well as lower absolute numbers of poor people.


CDC’s geographic investment focuscompared to other DFIs (100%)*

56

Africa, Caribbean, Pacific Asia Other

3962

11

27

60

13

27

39

45

16

47

28

25

CDC IFC DEG Proparco FMO(German) (French) (Dutch)

World’s poor by region*

1

2

3

4 567 1 Sub-Saharan Africa 28%

2 China 15%3 India 33%4 Other Asia 18%5 Latin America &

Caribbean 4%6 Middle East & North

Africa 1%7 Europe & Central Asia 1%

CDC portfolio value by region

12

3

45

61 Sub-Saharan Africa 50%2 China 11%3 India 18%4 Other Asia 10%5 Latin America 5%6 North Africa 6%

Current portfolio

Sub-Saharan Africa50% of CDC’s portfolio£466m, 28 countries

Asia39% of CDC’s portfolio£363m, 28 countries

Latin America5% of CDC’s portfolio£49m, 13 countries

North Africa6% of CDC’s portfolio£50m, 4 countries

Low income countries1

56% of CDC’s portfolio£524m

Middle income countries2

44% of CDC’s portfolio£404m

£57m in small and mediumsize enterprise (SMEs) funds

* Per World Bank regional divisions

5

* From the EDFI 2008 Comparative Analysis of EDFI Members


Sub-Saharan Africa is lagging behindother regions in reducing poverty rates.While the rapid economic growth rates inAsia are expected to reduce poverty ratesto half 1990 levels by 2015, as stipulatedby the United Nations’ MillenniumDevelopment Goals, 37% of thepopulation of sub-Saharan Africa isexpected to remain poor by this time. As a comparison, 25% of the populationof South Asia is expected to remain inpoverty by 2015.

Compared to other development financeinstitutions (DFIs), CDC is relatively morefocused on the poorest countries. CDChas a higher share of its total investmentsinvested in the low income countries insub-Saharan Africa and South Asia thanany other DFI.

Going forward, CDC’s investments will be even more focused on the poorestcountries. CDC’s investment policy for the 2009-2013 period is to invest the bulkof its capital in sub-Saharan Africa and low-income countries in other regions1

according to the following targets for new investments:

• 75% in low-income countries; • 50% in sub-Saharan Africa; and• up to £125m for small and medium

size enterprise (SME) funds in otherdeveloping countries.

The new investment policy strengthensCDC’s commitment to provide capital to businesses in the countries that need it the most to stimulate private sectordevelopment, promote economic growth,and, ultimately, help to reduce poverty.

Sustainable economic growth must bebroadly based on a mixed economy.Businesses of all sizes, operating in all sectors of the economy, are a prerequisite for sustainable development.Manufacturing, financial services,technology, consumer goods andservices, industry, retail and agribusinessall have vital contributions to make toeconomic growth and sustainabledevelopment. SMEs, start-ups and largerbusinesses are all important. CDC’s fundmanagers invest across the full range ofsectors and in businesses of all sizes andat all stages of development.

This report highlights the developmentvalue of multiple industry sectors andfocuses particularly on CDC’s investmentsin energy and utilities, information andcommunication technologies (ICT),financial services, microfinance and funds for investment in SMEs.

2004 2005

200156

2006

257

2008

436

2007

412

CDC’s new investments (£m)

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness

Consumergoods &services

Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

80

8364

49

151152

127

126

25

55

16

CDC’s investment value by sector (£m)

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

42

5629

33

156119

120

44

48

26

8

CDC’s portfolio companies by sector(number of companies)

Top investment destinations

India18% of CDC’s portfolio144 companies£166m

Nigeria12% of CDC’s portfolio44 companies£111m

China11% of CDC’s portfolio93 companies£101m

South Africa10% of CDC’s portfolio38 companies£90m

Tanzania9% of CDC’s portfolio12 companies£85m

* Information and communication technologies


Kosan Crisplant, CamerounProvision of cleaner burningfuel for the rural poor

In developing countries, where peopletypically use coal and biomass forcooking and heating, indoor air pollution is a major cause of health andenvironmental problems. Burning indoorfires and stoves exposes people to highlevels of pollutants which increase the risk of eye and lung infections. 1.6 milliondeaths worldwide are attributed annuallyto the indoor burning of biomass. Withoutelectricity to their homes, families mustalso spend time each day gathering fuel,which reduces time spent in education oremployment. The burden of gatheringfirewood usually falls on women.

Cameroun has a population of 18.5 million,with around 40% living below the povertyline on less than US$2 per day. A largeshare of the population, particularly inrural areas, lack access to energy.

Kosan Crisplant Cameroun currentlysupplies liquefied petroleum gas (LPG) and equipment with the assistance ofdistributors and retailers through itsdepots in Douala, Yaoundé, and Limbe,three of Cameroun’s largest towns, and in the north-west and western regions ofthe country. LPG is a cleaner burning fuelthan wood or charcoal. It releases fewergreenhouse gases when burnt, emittingno smoke and very few residual particles.It is therefore safer for indoor anddomestic use than traditional fuels. KosanCrisplant Cameroun is a joint venturebetween the Danish firm Kosan Crisplant,CDC’s fund manager ECP, and the Danishdevelopment finance institution IFU. It is astart-up company, projected to generatepositive EBITDA levels in 2009.

Kosan Crisplant is developing andinvesting in mobile filling plants todistribute LPG throughout Cameroun. The company aims to access the mostremote areas of the country, where lack of basic roads and other infrastructurerestricts the availability of LPG.

A key constraint in promoting the use ofLPG to the poor is the cost of storagebottles. With help from ECP, KosanCrisplant has developed a pricing plan tobetter suit the needs of the lower incomeconsumers. This initiative was designed to reduce the up-front cost of using LPG.Cylinders sold by Kosan Crisplant aresubsidised by the company and sold athalf of the normal price. The cost ofsubsidisation is offset by the increasednumbers of people buying gas fromKosan Crisplant.

Kosan Crisplant is, accordingly, a majorcontributor to improving the provision of access to energy for the poor inCameroun, allowing households to cookin a safe and sustainable manner, withlower emission of greenhouse gases.Delivering fuel to the villages allows the poor, particularly women, to focus on income generating activities andraising their children rather than oncollecting fuel.

Kosan Crisplant has worked with theCamerounian Ministry of Energy andMining to improve national regulations.The company’s safety systems andprocedures willl set the example for new legislation governing the sector.

Key data1

Investment:2 €1mInvestment period: 2005-presentSector: Industrials, commercial servicesFund manager: ECPEmployment: 30Employment growth:3 25Turnover: €980,700Turnover growth:4 €520,500EBITDA: –€206,500EBITDA growth:4 –€28,200Taxes paid: US$1,700

Footnotes for Key data1 From year-end 2008, except for when stated otherwise.2 €1m invested by ECP. CDC’s investment in ECP’s Central

African Growth SICAR fund is €5m; total fund size is €24m.3 2005-2008.4 2007-2008.


Created in 1948 to promote private sector development in the UK’s former colonies, CDC has grown the public capitalentrusted to it and provided finance to enable ever increasingnumbers of companies in developing countries to realise theirgrowth potential. In 2001 and 2004, two new private equity fundmanagers, Aureos and Actis, were created to manage CDC’sexisting investments. CDC became an indirect investor and as such, was able to promote further third party capital to be invested in developing countries as well as local capacitybuilding through investments with new fund managers. Today,CDC has £928m invested in 681 portfolio companies through 59 different fund managers with offices in 34 developing countries.

CDC’s evolution

Chapter


1948The Colonial Development Corporation –CDC – set up to support private sectordevelopment in Britain’s colonies. CDC’sfirst offices were established in Kenyaand Nyasaland (now Malawi).

1949CDC makes its first industrial investmentin the Chilanga cement plant in NorthernRhodesia (now Zambia) and acquiresBorneo Abaca in Malaysia, which was to become a major producer of palm oil.

1952CDC starts Molopo cattle ranch in Bechuanaland (now Botswana),which was to become one of thelargest in southern Africa.

1963With most British colonies nowindependent, CDC is renamedCommonwealth DevelopmentCorporation.

1970A loan to Merpati Airlines, Indonesia,is CDC’s first investment outside theCommonwealth.

1987CDC’s first investments are made in India and Pakistan.

Chapter 2 – CDC’s evolutionA new, intermediated, model for development finance

From Colonial Development Corporation to today’s CDC Group plc:over 60 years of investment in businesses in poor countries.

1948 1950/60 1970/80

Chapter 2 – CDC’s evolution 15

2001Aureos is created to manage CDC’sinvestments in small and medium size enterprises (SMEs).

2004-2005Actis is spun out of CDC as a newprivate equity fund manager chargedwith managing CDC’s previous directinvestment portfolio and to raisefurther private capital for investmentsin emerging markets. CDC startsoperating as a fund-of-funds andinvests with 10 new fund managers.

2007The majority of CDC’s investments in power assets through Globeleq aresold, generating record profits that arerecommitted with new fund managers.

End of 2008CDC has £928m invested in:

• 681 portfolio companies

• 127 funds

• 59 different fund managers

1992CDC invests in its first private equityfund in sub-Saharan Africa, GhanaVenture Capital Fund, to attract morecommercial capital to Africa fromother investors.

1997Prime Minister Tony Blair announcesthat CDC is to become a PublicPrivate Partnership (PPP).

1990 2000 2008

CDC’s new model for development finance

CDC has supported promising businessesin Africa, Asia and Latin America for over60 years. CDC was the first developmentfinance institution (DFI). It was establishedin 1948 to strengthen the economies ofthe former British colonies by providingfinance in terms of loans and equity forbusinesses. In 1970, CDC startedinvesting outside of the Commonwealth.CDC has been profitable in all but fouryears since 1955. As with many otherinvestors, CDC has seen a decrease in itsportfolio value with the global recessionduring 2008.

For 60 years, CDC has reinvested itsprofits, allowing increasing numbers ofcompanies to benefit from CDC’s capital.CDC has not had any new funding fromthe UK government for 13 years.

During the first 50 years of its operations,CDC directly provided loans and equity tocompanies across the emerging markets.Since 2004, CDC has invested primarilythrough private equity funds that in turninvest in companies in the poor countriesof the world. This new investment modelfor CDC was created from a majorrestructuring by CDC’s shareholder, the UK Department for InternationalDevelopment (DFID). Two new privateequity fund managers: Actis and Aureoswere created to manage CDC’s existinginvestments and CDC became a fund-of-funds.

The successful creation of Actis andAureos: two leading new private equityfund managers for emerging markets

As part of the restructuring process, the majority of CDC’s staff of some 200people was spun off into two privatelyowned private equity fund managementcompanies, Actis and Aureos, the formerfocused on investment in largercompanies in emerging markets and the latter on small and medium sizeenterprises (SMEs). CDC, whichcontinued to own the financial assets builtup over the years, pays Actis and Aureosfees and a share of profits for managinginvestee companies on CDC’s behalf.

At the time of the restructuring in 2004,CDC’s aim was principally to stimulatefurther flows of capital and especiallyprivate capital into the poorest countriesof the world. The means to do this wasfirstly to build Actis and Aureos into twoworld-class private equity managementfirms focused on the emerging markets,and secondly for CDC to diversify itscommitments gradually to fund managerslocated in poor countries, and in this waybuild local capacity and stimulate theemergence of better functioning capitalmarkets.

Actis is now a well established name inemerging markets private equity. Aureos iswidely recognised as the leading player ininvesting in SMEs in the developing world.There is probably no other company thatcan match Actis’ size and spread in theemerging markets: the firm now hassubstantial operations in Africa, India,China, South East Asia and Latin America.Actis is still CDC’s single largest fundmanager, representing 49% of CDC’sportfolio value.

The impact of the restructuring of CDCand the establishment of Actis and Aureoshas been dramatic in terms of attractingnew capital to poor countries. Actis hasraised almost US$2.9bn from investorsother than CDC over the last four years,the majority from pension funds,endowments and other private sectorinstitutional investors.

Aureos has raised US$575m forinvestment in SMEs since 2004. Themajority of Aureos’ funding has comefrom DFIs whilst, like Actis, Aureos hasalso diversified its sources of capital to include pension funds and privateinstitutions. The strong fundraising byActis and Aureos shows the success of CDC’s strategy of investing its capitalthrough these fund managers to attractfurther investors to poor countries.


CDC’s 57 new fund managers: local capacity building and catalytic effects for further capital to developing countries

After Actis and Aureos were spun out of CDC, CDC started to commit capital to an increasing number of other fundmanagers, located throughout theemerging markets.

Since 2005, CDC has committed almostUS$3.5bn to 57 new fund managers.Alongside CDC’s commitments, otherinvestors have committed US$17.7bn tothese 57 fund managers. More than 90%of the capital invested alongside CDC isfrom private sources. In many cases, CDCplayed an important role in attracting newinvestors to funds by working actively withfund managers to help them raise capital.CDC is often seen as a “stamp ofapproval” for new fund managers inemerging markets, which is reassuringand attractive for other investors. Morebroadly, CDC has been part of a processthrough which investors have beenencouraged to commit further capital to poor countries.

CDC’s success depends to a large extenton the selection of strong fund managers.CDC looks for experience and acompelling investment strategy:

• in line with CDC’s focus on the poorestcountries; and

• a record of successful investments in commercially viable and promisingcompanies.

CDC also requires a strong commitmentto responsible investment principles andrequires its fund managers to sign up toCDC’s Investment Code on environmental,social and governance (ESG) matters.

CDC’s evolution continued

“CDC has made a crediblecontribution to economicdevelopment in poorcountries while alsoencouraging other foreigninvestors to engage with them.”

The UK National Audit Office Report on DFID’s oversight of CDC, 2008.

2005 2006

2,835

2007 2008

Third party capital invested alongside CDC (US$m)

Total

21,1518,355

3,940

6,021

Total capital committed to Actis’funds (US$m)

12

3 1 CDC 3,3612 Other DFIs 803 Commercial

investors 2,789

2004 20053

132006

26

2008

59

2007

42

CDC’s fund managers (number)

2004 2005 2006 2007

Third party capital raised by Actis (US$m)

2008 Total

1,692 2,869

137

61453

526

CDC capital invested by fund managers (%)

12

3 1 Actis 49%2 Aureos 6%3 57 other fund

managers 45%

Total capital committed to CDC’sfund managers 2004-08 (US$m)

1

2

3 1 CDC 7,1372 Other DFIs 1,4333 Commercial

investors 19,718

Chapter 2 – CDC’s evolution 17

African Capital AllianceEmergence of a new,successful West Africanfund manager supported by CDC

African Capital Alliance (ACA) was the firstprivate equity fund manager in Nigeria.CDC invested US$5m in ACA’s first fundin 1999. Along with commitments fromthe International Finance Corporation(IFC) and the Dutch development financeinstitution (DFI) FMO, CDC’s investment in ACA’s first fund represented the onlycapital raised from investors outsideNigeria following the end of the militarydictatorship and the transition todemocratic rule. CDC decided to backACA as a way of developing contacts in Nigeria and insights into a country inwhich CDC had no recent track record of investing. Ten years later, Nigeria iscurrently CDC’s second largestinvestment destination with a total of£111m in portfolio value invested bymultiple different fund managers inAfrica’s largest low income country.

ACA’s first fund invested a total ofUS$12m from CDC and other DFIs in tenportfolio companies, alongside a furtherUS$20m invested by private Nigerianinvestors, most of which proved to behighly successful investments. Most of the portfolio companies were in thetelecommunications sector, making amajor contribution to Nigeria’s telecomboom during the last ten years. Seven ofthe portfolio companies in ACA’s first fundwere SMEs. ACA’s most successfulinvestment was in MTN, Nigeria’s leadingmobile phone operator, during its start-up

phase. ACA played a major part in MTN’sdecision to come to Nigeria, as MTNwould not have expanded operations to Nigeria without reliable local partners.Eight of the ten portfolio companies inACA’s first fund demonstratedemployment growth, creating a total of6,700 new jobs for Nigerians. MTN alsocreated an estimated 20,000 new indirectjobs. Nine out of the ten portfoliocompanies in ACA’s first fund have shownan increase in turnover. Six of the portfoliocompanies have demonstrated growth inprofitability. ACA has thus far successfullysold most of the ten investments in its firstfund, with proceeds returned to CDC andits other investors. As always, CDC hasreinvested these proceeds into new,promising funds in poor countries.

Based on ACA’s successful track recordwith its first fund, CDC invested US$17mwith ACA’s successor fund in 2006. ACA’strack record enabled the fund manager toraise a total of US$100m for its secondfund, half of which was from commercialinvestors. CDC was the largest singleinvestor in ACA’s second fund and playedan active role in assisting ACA withfundraising. Thus far, five of nine portfoliocompanies in ACA’s second fund havedemonstrated growth in employment, witha total of 1,300 new jobs created. Portfoliocompanies in ACA’s second fund have sofar contributed US$120m in tax revenuesto the Nigerian government.

ACA has now initiated a new focus on the oil and gas sector, which will play animportant role in promoting indigenous oiland gas firms. ACA has substantiallystrengthened its management systems to address the environmental, social andgovernance (ESG) risks involved in

investing in oil and gas, particularly giventhe challenging security situation in theNiger delta. CDC provided considerablesupport to ACA in its efforts to improveupon its ESG management systems.

With its third fund, which is expected to be substantially larger than itspredecessor fund, ACA will continue toplay an important role in the strengtheningof capital markets in Nigeria andthroughout West Africa.

Over the ten years of CDC’s engagementwith ACA, the firm has grown from itsfounder Okechukwu Enelamah and hiscore team to around 20 investmentprofessionals and an associated range of highly qualified specialist consultants.

2 or more local fund managers

1 local fund manager

CDC’s fund managers have offices in 34 developing countries

Key data

US$52m committed by CDC to 3 funds16 portfolio companies9,300 jobs supported by portfoliocompanies in ACA’s first 2 fundsUS$120m taxes paid by 9 companies that reported data 2008


CDC’s evolution continued

Outsourcing ServicesLimited, NigeriaStart-up security companywhich improved standardsand was sold at a recordprice

Outsourcing Services Limited (OSL) wasone of the many successful investmentsin African Capital Alliance’s (ACA) first fund.

Successful financial and economicperformance:

• ACA acquired a 40% stake in OSL in 1999, the other 60% being held by an international partner, Gray SecurityServices of South Africa. Gray SecurityServices was subsequently acquired by Securicor, which then merged withGroup 4 to become G4S.

• OSL has been a great commercialsuccess. The company has grown froma start-up to become the leading firm in the outsourced security servicesindustry in Nigeria.

• G4S bought ACA’s stake in OSL forUS$10m in 2009. This sale realised anIRR of 58% over 10 years. This is oneof the most successful exits to datefrom CDC’s fund-of-fund’s portfolio.

Responsible business practices and improved standards:

• OSL is a security outsourcing companythat supplies security guards. It was ahigh risk investment, especially giventhe difficult security situation in Nigeria.

• The minimum wage is strictly enforced.

• OSL’s security guards are better trainedand better paid than guards atcompetitor firms.

• The percentage of company revenuesspent on salaries at OSL is 51%, ascompared to an industry average ofaround 41%.

Guards are provided with medicalinsurance and life insurance. OSL’s high standards have enabled OSL tocharge its corporate clients a premium forits security services. The better training,higher wages and strong employeebenefits packages have raised thebenchmark for the Nigerian securityservices industry as a whole.

Key data1

Investment:2 US$235,000Investment period: 1999-2009Sector: Industrials, commercial services

and suppliesFund manager: African Capital AllianceEmployment: 5,000Employment growth: >4,500Turnover: US$34mTurnover growth:3 US$31mEBITDA: US$3mEBITDA growth: Start-upTaxes paid: US$688,000

Footnotes for key data1 From year-end 2008, except for when stated otherwise.2 US$235,000 invested by African Capital Alliance’s first

fund, Capital Alliance Private Equity 1. CDC’s investment inCapital Alliance Private Equity 1 is US$5m; total fund size is US$35m.

3 2002-2008.

3Chapter

Responsible investment practices have always been core to CDC’s mandate. No longer a direct investor, CDC now promotesresponsible investment practices through its 59 fund managers who, in turn, ensure that their portfolio companies improve upon their business practices from environmental, social andgovernance (ESG) perspectives during their investment period. In 2008, CDC updated its standards for responsible investmentand business practices with a new Investment Code, which isincluded as an appendix to this report.

Promoting responsible investment and business practices


CDC’s new Investment Code on environmental, social andgovernance (ESG) matters was launched in 2008.

Chapter 3 – Promoting responsible investment and business practices

CDC’s work to promote responsibleinvestment and business practices

Poor management by businesses of the environment, social matters andgovernance (ESG) is common in thedeveloping markets of low incomecountries. Weak laws ineffectivelyenforced, a culture of corruption and laxcorporate governance standards meanthat businesses need not necessarily bedriven to protect their environment fromthe external effects of their activities northeir workers or affected communitiesfrom unacceptable risks.

CDC links its investment capital to acommitment by its fund managers andtheir portfolio companies to adhere tominimum requirements for responsiblebusiness practices with respect to ESGand to work over time to improveperformance towards internationalstandards. With this commitment, CDCand its fund managers seek to ensureminimum standards and to buildawareness among portfolio companies of how proper attention to reduce waste,pollution and energy consumption as wellas adequate safeguards for the wellbeingof employees and the communitiesaffected by business activities can be keylevers for business success. CDC’s fundmanagers usually structure good

governance measures prior to their investments, and implementimprovements over the investment periodwith a strong focus on environmental andsocial matters. In the medium to longterm, CDC has ample examples of howresponsible business practices can attractinternational customers, reduce risks,build stronger brands, and often alsoreduce costs. The promotion of goodbusiness practices in poor countries byCDC and its fund managers is a coreaspect of how CDC’s investmentscontribute to development.

Investing through fund managers makes it more of a challenge for CDC to ensuregood business practices, as CDC is nowone level removed from portfoliocompanies. However, as CDC’s fundmanagers also invest large amounts of capital from other sources, theirinvestments reach a larger number ofcompanies and they can have a widerinfluence on responsible businesspractices than would be possible solelywith capital from CDC. A core objectivefor CDC is to turn the challenge ofpromoting responsible business practicesthrough an intermediated investmentmodel into an opportunity for widerreaching development effects.

Assessing risks and addressing issues over time

CDC works with its fund managers toensure that they pay sufficient attention toESG matters throughout their investmentactivities. As CDC’s fund managers arelong term investors, they are wellequipped to bring about improvements incorporate ESG practices over time. This isparticularly important for fund managersthat invest in sectors with significant risks.Responsible investors like CDC andCDC’s fund managers have a key roleinvesting in high-risk sectors to bringabout better business practices inportfolio companies which helps topromote better standards overall in poor countries.

Industries with particularly high ESG risks include:

• industries with high risks of pollution,such as large factories, oil and gasextraction and refineries;

• activities which affect the naturalenvironment, for example mining, large-scale agribusiness, forestry, andconstruction of new infrastructure;

• resource intensive industries, includingcement plants and aluminium smelters;

• Formal agreement withCDC to commit to theInvestment Code – byCDC’s standard sideletter or equivalent

• Investment strategy in line with CDC’sexclusion list

• Awareness of ESG risks and opportunitiesand how portfoliocompanies shouldaddress these, e.g. if investment strategyincludes high risksectors like oil and gas,mining, or large scaleagribusiness

• Awareness of country/regional ESG risks

• Assess newinvestments on ESGmatters: > sector risks> issues or opportunities

to add value > quality of investee

company ESGmanagementsystems

• Give new investmentsa risk rating on ESGmatters to determinethe appropriate level of management andmonitoring

• Where fund managershave effective controlor significant influence,procure investmentundertaking fromportfolio companies in line with CDC’sInvestment Code

• Assist portfoliocompanies to developaction plans to addressany ESG issuesidentified during duediligence, withappropriate targets and timetable forimprovements

• Encourage managers ofportfolio companies to: > adopt and implement

sound ESG policies> work towards

continuousimprovements

• Monitor portfoliocompaniesperformance on ESGand progress towardsaction plans forimprovements

• If ESG issues arise,assist portfoliocompanies to addressthem in a timely manner

• Report annually to CDC • Monitor and record any

serious ESG incidentsin portfolio companiesand inform CDC

• Consider ESG mattersat divestment:> any ESG issues with

potential buyers?> will sound ESG

practices continueunder new owners?

CDC requires its fund managers to consider ESG matters in all of their investment activities

Fundraising –CDC investment Due diligence Investment

Investmentmanagement Exit> > > >

Chapter 3 – Promoting responsible investment and business practices 21

• businesses which use low skilledworkers such as textile production,mining, agribusiness and forestry in countries with weak employmentlegislation;

• businesses which involve workershandling hazardous substances, for example mining, agribusiness and chemical factories; and

• businesses which can pose health andsafety dangers for consumers, such aspharmaceuticals and food producers.

Environmental and social risks aretypically lower for investments in financialinstitutions, media, information andcommunications technologies or retail.

From the business integrity and corporategovernance perspectives, risks andopportunities for improvements could cutacross most sectors. Corrupt practicesare particularly common in sectors thatinvolve large contracts, not least withgovernments. Improvements in corporategovernance are often called for incompanies that have grown quickly whilststill being managed by the founder or anextended family without an independentboard and key professional functions such as a qualified Chief Financial Officer (CFO).

Managing ESG matters throughout the investment cycle

CDC requires its fund managers to have ESG management systems that are suitable for the level of risk of thecompanies in which they invest. This involves conducting thoroughenvironmental and social impactassessments before CDC’s fundmanagers invest in high risk companies inorder to identify risks and current issues,often with the assistance of specialisedtechnical advisors. Such technicaladvisors need to be experienced in theparticular high risk sector that a fundmanager considers investing in, as well as knowledgeable about the local countryand regional situation. Experience inidentifying areas for improvements incorporate governance is usually part of a fund manager’s core skills. Before orshortly after any new investment, CDC’sfund managers should design actionplans for appropriate improvements overthe investment period. Working with thelocal fund managers, CDC contributes to building capacity for responsibleinvestment practices and sound ESGmanagement in poor countries.

CDC’s new Investment Code on ESG

CDC’s new Investment Code waslaunched in 2008. It can be found onCDC’s website and as an appendix to this report. It sets out CDC’s principles,objectives, policies and managementsystems for responsible investment withrespect to ESG. The Investment Codereplaced and updated CDC’s previousBusiness Principles, which had been used in a similar way, and incorporateddevelopments in international goodpractice over the last four years. CDC’sInvestment Code includes an exclusionlist, which specifies businesses andactivities in which CDC will not invest for ethical reasons.

The core principle of CDC’s InvestmentCode is that businesses in which CDC’scapital is invested should work onimproving their practices on ESG in linewith international good practices over theduration of the investment by CDC’s fundmanagers. While business standards maybe weak at the time investments aremade, CDC’s fund managers work withtheir investee companies to improvebusiness operations and practices fromthe ESG perspective during theinvestment period.

Risk category Description of category Examples

Category A/ Significant adverse environmental • Large dams and reservoirsHigh Risk impacts that are diverse, • Large scale agribusiness

irreversible or unprecedented • Large scale forestry• Oil and gas • Mining • Hazardous waste disposal

Category B/ Potential adverse environmental • Small scale agribusinessMedium Risk impacts are less severe than • General manufacturing

those of Category A. Mitigating • Textile plantsmeasures can be designed • Telecommunicationsmore readily • Food and beverages

• Water supply and sanitation• Aquaculture and mariculture

Category C/ Minimal or no adverse • Advisory assignmentsLow Risk environmental impacts • Mortgage securitisation

• Life insurance• Media• Information technology

Rating ESG risks – examples of how to categorise companies from the environmental perspective


Promoting responsible investment and business practices continued

CDC’s fund managers are required tocommit to implement CDC’s InvestmentCode, and to use it as a referencestandard for their investments.Performance of CDC’s fund managersand portfolio companies against theInvestment Code is one of the keycomponents of CDC’s broader frameworkfor measuring the development effects of its investments, as further described in chapter four. During evaluations, CDCvisits a representative sample of portfoliocompanies, with a focus on companies in high risk industries, to verify soundcorporate ESG practices. In 2009, anumber of evaluations will be done byindependent consultants. CDC’s ownprocesses to implement its InvestmentCode will also be subject to externalverifications.

CDC’s new Investment Code wasdeveloped by CDC in close collaborationwith its shareholder, the Department forInternational Development (DFID), and as a result of extensive consultations withother development finance institutions(DFIs), notably the International FinanceCorporation (IFC), and the Europeandevelopment finance institutions (EDFIs).There has been considerable

convergence as to what is understood as responsible business management ofESG matters in emerging markets overthe last few years. The IFC’s Policy andPerformance Standards on Social andEnvironmental Sustainability and theassociated IFC/World BankEnvironmental, Health and Safety (EHS)Guidelines have been adopted as thestandard for direct investments by mostbilateral DFIs, including most of theEuropean DFIs, as well as by the EquatorBanks.16 CDC’s Investment Codeincorporates the IFC’s PerformanceStandards and EHS Guidelines as thereference standards for CDC’s fundmanagers to use for investments in high-risk sectors. The industry specificEHS Guidelines address how to mitigatesuch risks.

CDC’s Investment Code also builds onand aligns with other internationalconventions and good practice standardson ESG. It incorporates the core labourstandards of the International LabourOrganisation (ILO), the ExtractiveIndustries Transparency Initiative (EITI),the United Nations’ FrameworkConvention on Climate Change and itsassociated Kyoto Protocol, the OECD

Principles of Corporate Governance, andseveral other key conventions that haveestablished relevant international normsand standards to protect the environment,ensure decent, fair and non-discriminatorylabour and working conditions, safeguardadequate health and safety standards at work, ensure business integrity andpromote good corporate governance.

THROUGH EFFECTIVE ENVIRONMENTAL,SOCIAL AND GOVERNANCE ANALYSIS

TOOLK I T FOR F U N D M A NAGERS

In association withForum for the Future

• CDC provides its fund managers with a Toolkit on how to add value to portfolio companies from the ESG perspectives

• CDC will update its ESG Toolkit to align with the new Investment Code

• The updated Toolkit will include new sections on: > how different types of businesses can assess

risks and opportunities from climate change> how to improve upon business practices

from the gender perspective• See www.cdcgroup.com

Chapter 3 – Promoting responsible investment and business practices 23

Athi River Steel Plant, KenyaProviding income for thepoorest and improvingenvironmental managementof scrap steel recycling

While still a poor country, Kenya is anemerging engine for economic growth in East Africa. Over 40% of the Kenyanpopulation of 35 million live below theUS$2 per day poverty line. In 2008, Kenyafaced a number of challenges. Lower thanaverage rainfalls negatively impacted theagriculture sector, lowering yields andexport revenues. Contested generalelections results at the end of 2007 led to bouts of violence during which vitalinfrastructure was damaged and 300,000people were displaced. The tensions ledto a fall in economic activity, withdecreases in production and a decline inforeign investment. The 2008 economicgrowth rate was the lowest since 2004.

Established in 1996, Athi River Steel is asteel smelting company producing hotrolled steel products from recycled scrapmetals. Its products include fasteners,steel springs building and structuralmaterials. When CDC’s fund managerAureos invested in Athi River Steel in 1998through the Acacia fund in which CDCwas a founding investor, the Kenyan steelindustry was still in its infancy. 50% of thesteel used in Kenya was imported at high,international prices. The little scrap metalthat was collected was exported at verylow prices. Athi River Steel’s businessmodel of sourcing local scrap metals forhigh quality new steel products proved a success with Kenyan steel purchasers.It also provided important incomegeneration opportunities for an emerginggroup of scrap metal collectioncompanies. By 2004, there were over1,000 scrap metal companies registeredwith the Kenyan scrap dealersassociation. Athi River Steel estimatesthat there are over 150,000 people inKenya who receive income from sales

of scrap metal to scrap metal dealers.Aureos made a follow-on investment inAthi River Steel through its East AfricaFund, where CDC was also a foundinginvestor in 2006.

The Athi River Steel plant is located in theMavoko township 30 kilometres east ofNairobi. It provides jobs in a poor regionwhere there are few employmentopportunities outside agriculture. AthiRiver Steel employs 900 people, many ofwhom had received no formal training oreducation prior to joining. The companyprovides comprehensive training to allstaff, providing them with new valuableskills which enhance their futureopportunities.

The establishment of the plant stimulatedeconomic activity in the region morebroadly, with increasing demand foraccommodation, transport, healthservices and food. For example, a numberof local women have established informalbusinesses providing traditional food toAthi River Steel employees.

The process of smelting scrap metal canbe highly polluting, emitting smoke andparticles from the furnaces and producingslag as a by-product of melting scrapmetals in the furnaces. Athi River Steel,with the assistance of Aureos, hasintroduced a number of measures toreduce the company’s adverseenvironmental impact. Improvementsundertaken and underway includeconstruction of a higher smoke stack withan air pollution control device to manageand reduce emissions from the plant.

With furnaces and heavy machineryonsite, health and safety standards arealso an important consideration for AthiRiver Steel. In order to improve thegeneral health and safety standards at theplant, the company has engaged a healthand safety specialist and is committed tobringing in best practice on health andsafety risk management and ensuring thatoperations meet international standards.

Key data1

Investment:2 US$7mInvestment period: 1998-presentSector: ManufacturingFund manager: AureosEmployment: 900Employment growth:3 280Turnover: US$16mTurnover growth:3 US$6mEBITDA: US$3mEBITDA growth:3 US$0.1m

Footnotes for key data1 From year-end 2008, except for when stated otherwise.2 US$7m invested by Aureos. CDC’s investment in Aureos

East Africa Fund is US$8m; total fund size is US$40m. 3 2006-2008.

This will allow Athi River Steel to mitigatehealth and safety risks as well as todemonstrate leadership in environmentaland social management compared to its competitors.

Athi River Steel is expected to continue to grow in turnover and profitability. This growth will contribute to localemployment and economic growth in an environmentally sound and sociallyresponsible manner.


Promoting responsible investment and business practices continued

Key data1

Investment:2 US$4mInvestment period: 2003-2008Investment sold: 2008Sector: PharmaceuticalsFund manager: AureosEmployment: 550Employment growth:3

Reduction of 160 temporary workers whilepermanent employment has risen by 80.Turnover: US$24mTurnover growth:3 –US$2mEBITDA: US$3mEBITDA growth:3 –US$1m

Footnotes for key data1 The data is from 2006, except for when stated otherwise.2 US$4m invested by Aureos. CDC investment in Aureos East

Africa Fund was US$8m; total fund size is US$40m.3 2004-2006.

Although Tanzania has no formal codifiedenvironmental requirements for thepharmaceutical sector, Shelys has workedto ensure that World Health Organisation(WHO) standards on effluent discharge aremet. With Aureos’ support, Shelys hasmade the following improvements to itsoperations:

• Separate drainage facilities for wastewater to ensure safe effluent discharge.

• Reduced dust and particle emissionsby introducing a high efficiencyparticulate air filter which meetsEuropean Union standards.

Production standards at Shelys are in theprocess of being raised to WHO goodmanufacturing practice (GMP) standards.While WHO GMP is not required for drugssold in Tanzania, improving productionstandards has provided access for Shelysto markets in eight other countries acrossCentral and Eastern Africa.

With guidance from Aureos, Shelysintroduced tighter financial controls andimproved corporate governance with thecreation of new board committees foroversight.

Shelys leading position in East Africa,coupled with improvements inmanufacturing standards and improvedcorporate governance, persuaded AspenPharmacare, sub-Saharan Africa’s largestpharmaceutical manufacturer to acquire amajority stake in Shelys as part of itsAfrican expansion strategy. This is a clearexample of how ESG improvements gohand in hand with the business andinvestment case.

Shelys Pharmaceuticals,TanzaniaGrowing a successfulpharmaceutical businessthrough improvements indrug safety

Malaria is a major killer in developingcountries. In 2006, Tanzania reported 11.5 million cases of malaria and manymore cases go unreported. Malaria isattributed to inhibiting economic growthby as much as 1.3% per annum incountries where infection rates are high.17

Shelys is a Tanzanian pharmaceuticalmanufacturer, specialising in over-the-counter products. The company benefited from a five year investment fromCDC’s fund manager Aureos which wassuccessfully exited in 2008. Shelysproduces a range of pharmaceuticalproducts including generic anti-malarialdrugs. Aureos assisted Shelys in acquiringthe Kenyan company Beta Healthcare,significantly growing its distributionfootprint in East Africa. In addition, withAureos’ support, Shelys constructed anew state of the art manufacturing plantto replace its facility in Tanzania.

Shelys employs 550 people and complieswith all local labour legislation as well asthe International Labour Organisation’sfundamental conventions. Basic wagesfor all staff exceed the national minimumand staff receive uniforms, housing andtransport allowances as well as one freemeal per day.

Measuring the development effectsof CDC’s investments

Chapter Economic growth and poverty alleviation result frommultiple factors including capital for private sectordevelopment. CDC measures the contributions of itsinvestments towards these overarching developmentgoals along four parameters: financial performance,economic performance, ESG performance and privatesector development, which collectively make up thedevelopment outcome of a fund investment. CDC also assesses its own effectiveness. In 2008, CDCstrengthened its monitoring and evaluation system and conducted evaluations of 12 funds, covering 119portfolio companies in sub-Saharan Africa and Asia.The results of these evaluations were promising, while also highlighting areas for improvements.


CDC strengthened its monitoring and evaluation system and completed 12 fund evaluations in 2008.

acquire. CDC has to be practical andrealistic about what developmentalindicators to focus on, and to requestconsistent data from its fund managers toshow performance over time. The annualreports received from fund managers arecomplemented with more in-depthperiodic evaluations to show the widercontext of CDC’s investments and theirdevelopment value.

CDC’s new monitoring and evaluation system

During 2008, CDC undertook a majorreview of its system to assess thecontributions of its investments todevelopment. After benchmarkingextensively with other developmentfinance institutions (DFIs), CDC decidedto adopt a monitoring and evaluationframework which is similar but notidentical to that used by the InternationalFinance Corporation (IFC) forinvestments through financialintermediaries. CDC also activelycollaborates on monitoring development effects with the otherEuropean Development FinanceInstitutions (EDFIs).

Chapter 4 – Measuring the development effects of CDC’s investments

The objective of CDC’s investments is toaddress the shortage of capital availablefor businesses in poor countries whichenables them to realise their growthpotential in a responsible manner, andthereby contribute to economic growth for the benefit of the poor. Developmentcapital, however substantial, is only onecontributing factor behind economicgrowth and poverty alleviation. CDC’smonitoring and evaluation work aims toensure that CDC’s capital is deployed insuch a way that its fund managers andtheir portfolio companies contribute tothese overarching development goals.

CDC wants to see the businesses inwhich its capital is invested expand and improve upon their operations andthereby generate employment, payincreasing amounts of taxes andcontribute to broader benefits forconsumers in poor countries withincreased availability of better qualitygoods, services and infrastructure withoutdamaging the environment and whileensuring sound working conditions andsafeguarding the interests of the localcommunities. CDC also assesses whetherits fund managers are effective in raising

and investing further capital beyondCDC’s investments and in other wayscontribute to the development of moreefficient local capital markets whichbenefit economic growth.

To assess whether its investments havesuch positive effects and to identify issues if and when they occur, CDCregularly monitors and periodicallyevaluates its fund investments. Recording positive effects as well asissues, CDC’s monitoring and evaluationwork captures lessons and improvementsand enables CDC to work with its fundmanagers to make sure that problems aresolved and avoided for the future. Theinformation captured through CDC’smonitoring and evaluation system alsoserves to inform the wider public aboutCDC’s use of its capital for the benefit of poor countries. This report builds oninformation collected through CDC’smonitoring and evaluation work in 2008.

As CDC now invests through 59 fundmanagers, information about the 681different companies of all sizes andspread over 74 countries in which CDC’scapital is invested is challenging to

Key objectives for CDC

• Demonstrate that CDC’s investments are good for development• Use information collected as a management tool to improve

investment and business practices over time

Inputs

• CDC invests capital with fund managers in poor countries

• Third party capital

Outputs

• CDC’s fund managersinvest in commerciallyviable and responsiblymanaged companies

Outcomes

• Profitable and growingbusinesses

• Jobs and tax revenues• Increased availability

of products and services• Increased availability

of commercial finance in poor countries

Impact

• Poverty alleviation• Economic growth• Efficient capital markets

in poor countries

CDC’s monitoring and evaluation system captures development effects over time

Assessments: Prior to investments

Monitoring: Quarterly, biannual and/or annual reviews of key performance indicators: quantitative and qualitative

Evaluations: Verification of existing performance information and contextual considerations by CDC and external consultants

Chapter 4 – Measuring the development effects of CDC’s investments 27

CDC’s new monitoring and evaluationsystem is intended to be practical,simple and deliver the key informationrequired by CDC for its investmentmanagement and communicationpurposes, as well as for CDC’s Boardand shareholder, the UK Department for International Development (DFID), for their oversight functions.

The monitoring and evaluation frameworkused by CDC includes four keyparameters to assess the overalldevelopment outcome for each fundinvestment, based on the performance of a fund as well as its underlying portfoliocompanies:

• financial performance – indicatingwhether investments are profitable; thus returning capital to CDC for furtherinvestments and demonstrating to otherinvestors that profitable investmentscan indeed be made in emergingmarkets where they are traditionallyreluctant to invest;

• economic performance – indicating theextent to which investments generatebenefits for the local economy, in termsof commercially successful and growingbusinesses that provide employmentand generate tax revenues;

• ESG performance – indicating whetherfund managers and their portfoliocompanies adhere to responsibleinvestment and business practices inline with CDC’s Investment Code andwhether portfolio companies over time

improve upon their practices from theenvironmental, social and governance(ESG) perspective; and

• private sector development –indicating whether CDC’s investmentshave broader private sectordevelopment effects includingincreased availability of capital forbusinesses in low income countriesfrom the third party capital investedalongside CDC; more efficient capitalmarkets; improvements to regulatoryenvironments from contributions byfund managers or portfolio companiesto new standards and legislations; andincreased availability of better qualitygoods, services and infrastructure for the benefit of local communities.

CDC has selected a limited, core set of about 30 indicators for performancemeasurement for these performancedimensions. Details are provided in anappendix to this report.

CDC also monitors and evaluates its owneffectiveness in terms of adding value tothe investment work of its fund managersin various ways and in assisting fundmanagers to raise further amounts ofcapital, thus having a catalytic effect forincreased capital flows to poor countries.

CDC uses its monitoring and evaluationframework to:

• systematically record information fornew investments;

• annually monitor many of the keyindicators for each of the fourperformance dimensions; and

• systematically evaluate all fundinvestments at the mid-point of theirinvestment duration, typically five yearsafter CDC’s investment, as well as atthe end of the duration of each fund.

For evaluations, CDC operates a six-scalerating against each performanceparameter, ranging from excellent to poor. Such a six-scale rating forces ajudgment of performance and introducesnuances to the performance assessment.The aggregate rating of financialperformance, economic performance,ESG performance and private sectordevelopment makes up an overall ratingfor the development outcome of eachfund investment.

Similarly, the aggregate rating of CDC’sadded value and catalytic effects makesup the rating for CDC’s own effectiveness.Similar six-scale ratings are used forevaluations by the IFC and other DFIs.

• Fund managers’ ability to attract commercialcapital to poor country markets> Financial return to investors

• Contributions to economic growth> Commercially viable and growing businesses

that generate employment and pay taxes

• Responsible investment and business practices with respect to the environment, social matters and governance (ESG)> fund managers’ ESG management systems and

the ESG performance of portfolio companies

• Broader private sector development effects:> More efficient capital markets> Regulatory improvements> Benefits to customers from increased

availability of goods, services and infrastructure

• Net IRR of funds versus investment targets• IRR for each exit

• Employment• Taxes paid• EBITDA and turnover (increase over time)• SMEs and low income reach (if relevant)

• ESG issues and improvements over time• Development outlays (if available)• Environmental products/services (if relevant)

• Third party capital• Local capacity building• Enhancements to sectors and benefits

for consumers e.g., increase in telecompenetration, new infrastructure, increasedaccess to power and financial services

• CDC’s direct role in bringing in other investors> focus on commercial capital

• CDC’s direct contributions to improve the way fund managers invest CDC’s capital, e.g.:> to shape a fund’s investment thesis or terms> to improve fund managers’ ESG management systems> to recruit or contract key technical expertise for responsible and successful investment management

CDC’s monitoring and evaluation framework and indicators

Development outcome Concept Performance indicators

CDC effectiveness Concept

Financial performance

Economic performance

ESG performance

Private sector development

Catalytic effects

Added value


CDC’s monitoring and evaluation work in 2008

In parallel with updating and improvingupon its monitoring and evaluation (M&E)methodology, CDC started to make use of its new M&E system during 2008 andused this year to test and improve uponindicators and templates for reporting andevaluation purposes. Requests were sentto CDC’s fund managers for moreextensive information on non-financialmatters, including data on employment inportfolio companies and taxes paid andreports on ESG matters. Most of CDC’sfund managers responded to theserequests, providing CDC with animproved understanding of its investmentportfolio from the developmentperspective.

During 2008, CDC completed evaluationsof 12 fund investments, covering sevendifferent fund managers and 119 portfoliocompanies with a total aggregate portfoliovalue of £139m. Actis and Aureos bothmanaged more than one of the fundsevaluated. CDC’s investment team visiteda representative sample of the portfoliocompanies included in the evaluations,with a special focus on companies thatwere considered to be high risk from anESG perspective.

CDC will continue the work to strengthenits monitoring and evaluations systemsand practices during 2009. Seven of the20 evaluations that are planned for 2009will be outsourced to external consultants.CDC will also continue to work with itsfund managers to improve upon theirreporting practices.

CDC has used the information generatedfrom its monitoring and evaluation work in2008 to inform strategy development andnew investment decisions.

12 evaluation reports completed in 2008

The 12 evaluations completed by CDC in2008 represent more than one sixth of thetotal number of CDC’s current portfoliocompanies.18 In total, the funds evaluatedrepresent about one tenth of CDC’s totalportfolio value.

Five of the evaluations covered CDC’sinvestments in sub-Saharan Africa,including 54 different companies, most ofthem small and medium size enterprises(SMEs). Six evaluations covered fundsthat invest in Asia, with a focus on Indiabut also including other countries in SouthAsia, South East Asia and one fund inChina.19 One of the evaluations assesseda global microfinance fund, whichinvested in 15 different microfinanceinstitutions in many countries, includingBangladesh, Cambodia, India, Kenya,Nigeria, Pakistan, the Philippines andRwanda.

About half of the companies covered by the evaluations were relatively largebusinesses where CDC fund managershave invested growth capital. About 40% ofthe companies covered by the evaluationswere investments by SME funds.

Measuring the development effects of CDC’s investments continued

Regions covered by evaluations(portfolio value, £m)

1

2

34 5

1 Sub-Saharan Africa £36m2 China £13m3 India £87m4 Other Asia £1m5 Global £2m

Regions covered by evaluations(number of portfolio companies)

12

3

4 1 Sub-Saharan Africa 542 China 63 India 384 Other Asia 21

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure 1

136

10

1418

30

3

15

9

Portfolio companies evaluated bysector (number of companies)

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure 15

33

8

1215

36

3

2

42

Portfolio companies evaluated bysector (portfolio value, £m)

The evaluations covered:

12 funds

7 fund managers


£139m portfolio value

9 mid-point evaluations

3 final evaluations

CDC’s evaluation work in2008 covered fundsinvesting in companies ofall sizes and in all sectorsacross sub-Saharan Africaand Asia


Chapter 4 – Measuring the development effects of CDC’s investments 29

The 119 portfolio companies covered bythe evaluations represent most sectors,including e.g., mining, healthcare,agribusiness, financial services andenergy and utilities. The single largestnumber of portfolio companies included in the evaluations were industrialbusinesses, followed by information and communication technologies andconsumer goods and services.

The amount of capital committed by CDCto the 12 funds evaluated ranged fromthree large investments of £75m or moreto four smaller commitments of less than£6m. CDC’s investments ranged from aninterest of 91% in one fund to three caseswhere CDC’s interest was below 10%.Most commonly, CDC’s investmentrepresented 20-35% of the funds.

Three of the evaluations were conductedat the end of the duration of the funds’life. The final evaluations assessed theperformance of these funds and theirportfolio companies over a nine to 11 yearperiod. Nine of the funds evaluated wereat the mid-point of their investmentperiod. In several cases, CDC’sevaluations were performed at the timewhen fund managers were raisingsuccessor funds. For these fundmanagers, the evaluations wereinstrumental in guiding CDC’s newinvestment decisions.

Members of CDC’s investment teamprepared the evaluation reports and maderecommendations on evaluation ratings to CDC’s investment committee. CDC’sinvestment committee for the purposes of approving the ratings does not includemembers of the team that produced thereport but does include CDC’s Chief

Executive and other members of themanagement team. After review by CDC’sinvestment committee, which in someinstances led to evaluation ratings beingchanged, the evaluation reports weresubmitted for approval to CDC’s boardcommittee on best practice anddevelopment.20

During 2009, CDC will use its findingsfrom the evaluations conducted during2008 to further strengthen its evaluationprocesses and, through furtherexperience, improve upon the guidancenotes used for evaluations and ensureconsistency in evaluation ratings. Theevaluations that will be undertaken byindependent consultants during 2009 will also be helpful for this purpose.

Evaluation results and key findings

The overall results from the 12 evaluationswere promising. Nine of the evaluationreports were rated as overall successful in terms of development outcome.21

Only one fund was rated overall as belowexpectations.

Executive summaries from a sample ofthe evaluations completed during 2008are provided below. More detailedanalyses of results from the financial,economic, ESG and private sectordevelopment perspectives are provided in subsequent sections:

• A large growth capital fund invested in 14 different companies across allsectors in South Asia. This fund wasmostly invested in companies in India,but also pioneered private equityinvestments in Pakistan and Sri Lanka.The fund manager was one of the early

private equity firms to place a strongemphasis on ESG matters in the region.The fund manager used in-housespecialist staff and consultants to workwith portfolio companies across aspectrum of industries, including largefactories and chemical plants, to bringabout less environmentally damagingpractices, improvements in health andsafety standards and strengthenedcorporate governance. In two cases,there were fatalities at factory sites. The fund manager took these mattersvery seriously and ensured that proper investigations were undertaken.All companies in the portfolio grew interms of turnover. Ten of the 14companies grew in terms of profitability,as measured by EBITDA. Almost14,000 people were employed in thefund’s 14 portfolio companies, whichcollectively paid US$67m in taxes tolocal governments during 2007.

• A fund manager pioneered investmentsin small and medium size enterprises(SMEs) in the Pacific islands whereforeign direct investment is stilluncommon. Whilst an unfavourableeconomic and political environmentcontributed to low financial returns fromthis fund investment, CDC consideredits developmental impact in the regionto have been important, as the eightinvestee companies within its portfoliowould not have been able to sustain or expand operations without theinvestment from this fund manager. The fund supported the creation of 650new jobs, and generated US$43m intax revenues in some of the region’spoorest countries, including Papua New Guinea.

Excellent Successful Satisfactory Below Unsatisfactory Poor % satisfactory expectations or better

Development outcome* 0 9 2 1 0 0 92%

Financial performance 2 4 4 0 2 0 83%

Economic performance 2 7 2 1 0 0 92%

ESG performance 1 7 4 0 0 0 100%

Private sector development 3 8 1 0 0 0 100%

CDC effectiveness** 0 8 4 0 0 0 100%

Added value 0 6 6 0 0 0 100%

Catalytic 4 3 2 3 0 0 75%

Summary of CDC’s evaluation ratings in 2008

* Development outcome is the summary, aggregate rating fromthe categories’ financial performance, economic performance,ESG performance and private sector development.

** CDC effectiveness is composed of a qualified assessment ofwhether CDC’s staff added value and/or had catalytic effectsfor third party capital for funds beyond its own investmentcapital.


• Another fund manager successfullyprovided growth capital for SMEdevelopment for 14 companies in EastAfrica as one of the first sources ofsuch finance in the region. All of thesecompanies exhibited growth in turnoverand ten grew in profitability over theinvestment period. 12 of the 14 portfoliocompanies demonstrated employmentgrowth, with a total number of 3,700jobs supported by the fund’s capital.

• One fund similarly provided successfulgrowth capital for SMEs in SouthernAfrica. There were major improvementsin practices from an ESG perspectiveduring the fund manager’s investmentperiod, with the fund manager ofteninstrumental in addressing issues andimplementing improvements over time.

• A microfinance fund demonstratedstrong returns from investments inmicrofinance institutions (MFIs) andSME banks which provide financing to low income populations. Theengagement of the fund manager withthe managers of these MFIs and SMEbanks was key for this success. Thefund invested in MFIs and SME banksacross 15 different countries.

• One fund focused almost entirely onbuyouts of state owned enterprises in China. In this process, it increasedproductivity in the businesses that it invested in and achieved a moreefficient allocation of capital. Thoughinvestments are still at an early stage,the portfolio companies are allpromising and solid.

CDC’s effectiveness: added value andcatalytic effects

In addition to evaluating the developmentoutcomes of its fund investments, CDCassessed its own effectiveness in terms of making direct contributions to thesuccess of its fund investments. CDC analysed whether its employees could demonstrate effective work with the fundmanagers to raise further capital, orwhether CDC’s staff in other ways addedvalue to the investment activities of fundmanagers or the practices of theirportfolio companies. To avoid theperception of subjectivity, the evaluationreports had to detail accurately how andwhy CDC considered itself to have addedvalue or been catalytic for fundraising.Eight of the 12 evaluations concluded thatCDC’s effectiveness was successful.CDC rated its work with the remainingfour funds as satisfactory.

For all of the 12 funds evaluated, CDC’sassessments were able to demonstrateseveral instances of added value to itsfund managers, ranging from assisting thefund managers to design their investmentstrategy, helping fund managers improvefinancial reporting and valuationmethodologies, or improving the way fund managers worked with their portfoliocompanies to improve management ofESG matters. CDC’s Toolkit for FundManagers: Adding Value on ESG waswidely perceived as helpful. Six of the 12 evaluations concluded that CDC hadbeen successful in adding value to itsfund investments in one or more ways.The remaining six were rated assatisfactory.

While it is not usually possible to attributedirectly decisions of other investors toinvest in funds alongside CDC to CDC’sinfluence, the evaluation work concludedthat CDC had performed at leastsatisfactorily on catalytic effects for 75%of the 12 funds evaluated. For three funds,the evaluations concluded that CDCwould have expected to perform better inattracting other investors, resulting in abelow expectation rating. For four funds,CDC rated its catalytic value as excellent:these funds simply would not haveexisted without CDC’s commitment.

Measuring the development effects of CDC’s investments continued

1

23 1 Growth capital* 50%

2 SME 42%3 Microfinance 8%

* Growth capital is invested in larger companies.

Funds evaluated by type of investeecompany (%)

Financial performance: CDC’s unrealised portfolio valuationsuffered from the global recession in 2008, similarly to most otherinvestors. The reduction in CDC’s portfolio value, however, was farless than that of its market comparator. CDC’s fund managers wereable to realise some successful exits despite the market downturn.

Economic performance: 676,000 people were employed in the514 portfolio companies that reported employment data to CDC in 2008. US$2.2bn in tax revenues were generated by the 390companies that reported tax data. From the 12 evaluations, 82% of the portfolio companies increased turnover, 58% increasedprofitability as measured by EBITDA, and 76% showed an increasein jobs.

ESG performance: Evaluation work and reports from fundmanagers demonstrated that many companies in developingcountries experience issues from the environmental, social and/orgovernance perspective, and that CDC’s fund managers workextensively with their portfolio companies to improve corporatepractices.

Serious incidents occurred in some of CDC’s portfolio companies.CDC takes these incidents very seriously and requires its fundmanagers to address any contributory issues.

Private sector development: US$21.2bn in third party capital hasbeen invested alongside CDC, mostly from commercial investors.Most of CDC’s fund managers are based in developing countrieswith offices in 34 countries. Many are first time fund managers.CDC’s evaluation work brought out multiple aspects of the privatesector development contributions of CDC’s fund managers andtheir portfolio companies.

Development highlights in 2008Chapter 5


Financial performanceThe ability of CDC’s fund managers togenerate a strong financial return on theirinvestments demonstrates to otherpotential investors that it is worth thehigher perceived risk of investing inemerging markets. Attracting other investorsto poor countries is one of the key reasonswhy CDC strives to maximise the financialreturns from its investments. The otherreason is CDC’s ambition to grow ratherthan dilute the public capital entrusted to itto be able to continue to use the proceedsfrom successful investments to re-investin new companies in need of capital.

The annual valuation of CDC’s investmentportfolio reflects current market valuationsof the funds CDC invests in, which arebased on the underlying valuations of thefunds’ investments in companies. CDC,like most other investors, suffered fromthe global economic downturn during2008. The upheaval in emerging marketstock exchanges and subsequentdowngrades to company valuationsnegatively impacted CDC’s portfolio.Gross portfolio performance for CDC in2008 in US$ was a loss of 33%, comparedto a gain of 57% in 2007. CDC’s total loss for 2008 was £359m, driven byunrealised portfolio valuation losses.Suffering from the financial crisis, CDC’sportfolio fell by 33% while outperforming

Chapter 5 – Development highlights in 2008

the comparison most commonly used foremerging markets investments, the MSCIEmerging Markets Index which droppedby 55%. Over the last five years, CDC’saverage annual total returns have been18%. CDC’s total portfolio value at theend of 2008 was £928m.

CDC made a record number of newinvestments during 2008, amounting to£436m. These new investments added toCDC’s investment portfolio, which meantthat the total portfolio value at the end of2008 was comparable to the portfoliovalue at the end of 2007, despite theunrealised losses in the value of fundsheld from one year to the next.

CDC’s fund managers return cash to CDCand their other investors when they sellportfolio companies, typically four to seven years after their initial investment. A successful sale, returning capitalbeyond the amount invested, means thata portfolio company has proven strongenough to attract the interest of otherinvestors or a buyer from anothercompany, and no longer needs thefinancial backing from CDC’s fundmanagers. Despite the financial crisis,CDC’s fund managers realised somestrong exits during 2008, resulting in net realised profits of £22m.

Examples of companies that were sold byCDC’s fund managers during 2008 included:

• Trinethra, a retail store operator in India– India Value Fund 2, a growth capitalfund managed by India Value FundAdvisors, sold Trinethra at 4.2x itsinvestment cost, realising an internalrate of return (IRR) of 238%. Thissuccessful exit was the result ofTrinethra having used the fundmanager’s investment to increase itsnetwork of retail outlets across southernIndia, adding more than 80 stores to its operations.

• Starcomms, Nigeria’s fourth largesttelecoms operator – Actis realised apartial exit from its investment in

CDC return over 5 years versus market index (MSCI)

2003 2004 2005 2006 2007 2008100

150

200

250

300

350

400

CDC gross portfolio performance in US$MSCI Emerging Markets US$ Index

CDC: 160% increase over five years

MSCI Index: 26% increase over five years

MSCI US$ Index return versus CDC US$ portfolio return (%)

–80

0

100

Dec2007

Dec2008

Dec2006

Dec2005

Dec2004

MSCI IndexCDC portfolio performance


£436m record newinvestments

-£359m total loss

CDC annual performancewas -33% compared toMSCI index of -55%

Chapter 5 – Development highlights in 2008 33

Nigeria’s fourth largest telecom operator through an initial public offering(IPO) on the Nigerian stock exchange at2.9x investment cost, realising a 45%IRR. Since Actis invested withStarcomms in 2005, the operatorexpanded its subscriber base from140,000 voice connections to 884,000connections with operations in 11 different Nigerian states.

• UAC, Nigerian food services – Actissold 11% of its 20% shareholding inUAC, a leading food and food servicescompany in Nigeria. Actis’ investment in 2004 allowed UAC to expand its fastfood restaurants rapidly to meet astrong and growing demand fromNigerian customers in an undersuppliedmarket. Actis exited its investmentthrough the Nigerian stock exchange at 4.5x investment cost, realising an IRRof 56%.

• Shunda, a Chinese manufacturer ofsilicon wafers for solar power cells– Actis exited its investment in Shundathrough an IPO on the Chinese stockexchange at 3.1x investment cost andrealised an IRR of 138%. During theperiod of Actis’ investment, Shundaexpanded rapidly in response to thegrowing demand for clean energy fromsolar power to become one of China’stop four companies in this sector.

• Industrial Development FinanceCompany (IDFC) an Indian financialinstitution – IDFC was established tocatalyse commercial funding forinfrastructure projects. Actis sold itsshare of IDFC after a nine-year holdingperiod, returning a cash multiple of 11.2x with an IRR of 30%.

Evaluation results in 2008

For the 12 funds evaluated by CDC in 2008,the current valuations of these funds wererated against their net IRR investmenttargets at the time of CDC’s commitments.

For financial performance, evaluationratings were spread across five of the sixrating categories in CDC’s evaluationframework, with two funds receiving thehighest possible rating, excellent, and twofunds rated as unsatisfactory. Three of theevaluations were final, conducted at theend of these funds’ investment durationwhen actual returns were known. The fundthat was rated as excellent for its finalevaluation had a net IRR of 40%, withsome investments still to be sold. The twofunds that were rated as unsatisfactory fortheir final evaluations had positive net IRRreturns while substantially lower than theirinvestment targets.

The challenge of rating the financialperformance of funds at the mid-point oftheir investment duration was recognised,as few exits have taken place at thisstage. The mid-point evaluation ratingswere based on CDC’s current valuation ofthese funds. Most mid-point evaluationswere rated as either satisfactory orsuccessful on financial performance. The only fund that was rated as excellentfor a mid-point evaluation had onerealised exit with a net IRR above 200%.

Out of the total of US$2bn committed by all investors to the 12 funds that werecovered by CDC’s evaluation work in2008, US$1.3bn had been invested inportfolio companies at the time of theevaluations. For the three funds that wereevaluated at the end of their investment

duration, US$36m out of a total ofUS$50m in commitments had beeninvested in portfolio companies. One of the funds that was rated asunsatisfactory on financial performance at the end of its investment durationaccounted for most of this difference.

Examples from CDC’s evaluation work of fund managers working actively withportfolio companies from a financialperspective to improve the likelihood of a successful sale included:

• A Mauritian company where CDC’sfund manager decreased the debt/equity ratio from 1.2 to 0.49 through itsinvestment. A stronger balance sheet incombination with a healthy growth inturnover of the company facilitated itslisting on the Mauritian stock exchange,and reduced the company’sdependence on debt financing.

• One of CDC’s fund managers led asuccessful turnaround initiative for anaviation company in the Pacific islands,assisting management with strategyformulation and implementation toachieve a reversal of previouslynegative results. The fund manageracted as de facto CFO for the companyduring this turnaround process,undertook a customer-by-customerstudy of margins earned and revisedbudgets with reduced costs. Thecompany became profitable in late2006. CDC’s fund manager envisages a successful exit in the near future.

Financial performance evaluation results 2008 (%)

1

2

3

4 1 Excellent 17%, 2 funds2 Successful 33%, 4 funds 3 Satisfactory 33%, 4 funds4 Unsatisfactory 17%, 2 funds

2004 2005

937 938

2006

1125

20082007

Portfolio value over 5 years (£m)

1184928

Five funds above investmenttarget in terms of net IRR;one within range; six fundsbelow target

2008 2007£m £m

Portfolio at start of year 1,184 1,125New investments 436 412Realisations (245) (576)Unrealised gains (447) 223Portfolio at end of year 928 1,184


95,000 of the jobs supported by CDC’scapital were in 190 companies in sub-Saharan Africa. For this region, CDCreceived employment data from 70% of all of its portfolio companies in 2008.CDC, through its fund investments, is arelatively smaller shareholder in Asiancompanies compared to companies insub-Saharan Africa. In North Africa, 19of the companies supported by CDC’scapital employ 15,000 people. Thisrepresents 70% of all companies in theregion in which fund managers haveinvested CDC’s capital. 20,000 people areemployed in the 24 portfolio companies inLatin America that reported employmentdata to CDC in 2008, representing slightlymore than half of CDC’s portfoliocompanies in that region.

In terms of sectors, the largest absolutenumber of jobs supported by CDC’scapital was in the consumer goods andservices sector, with 211,000 peopleemployed in the 90 companies whichreported employment data to CDC in 2008.Industry and materials23 was the secondlargest sector by number of peopleemployed, with more than 106,000 jobssupported by CDC’s capital in the 101companies in this sector which reporteddata. In terms of average number ofemployees per company, the mining andagribusiness sectors were by far thelargest employers, with 65,000 jobssupported by the 21 mining companies withinvestments from CDC and 67,000 jobssupported by the 23 agribusinesscompanies where CDC’s capital is investedand that reported employment data toCDC in 2008. On average, 3,000 jobs are supported by each of CDC’s portfoliocompanies in mining and agribusiness. CDC considers jobs across all industriesto be important for development.

Employment intensive industries, likemining and agribusiness, often providethe only jobs available in remote locationsand make important contributions topoverty alleviation. Industries whichrequire higher skilled workers canstrengthen capacities through training andon the job learning. Through improved datacollection during 2008, CDC was pleasedto learn that companies supported by itscapital employ a larger number of personsthan previously estimated. CDC willcontinue to monitor employment dataduring 2009, as the global recession can be expected to continue to take a toll onjobs, and will continue to make its capitalavailable through its fund managers tosupport businesses that struggle throughthese difficult times.

Development highlights in 2008 continued

Economic performanceCDC seeks to assess the wider benefitsfrom the companies supported by itscapital to the economies where theyoperate and to the people working forthem. In some of the companies whereCDC’s capital is invested, CDC’s fundmanagers are large shareholders, andthus a major financial supporter tomaintain or create jobs and generate taxrevenues. In other companies, CDC’s fundmanagers are smaller shareholders. CDC’sinterest in the funds where its capital isinvested also varies. Direct attribution ofemployment maintained or created or taxrevenues generated to CDC’s investmentsis therefore not appropriate. Nevertheless,as the employment and tax data reportedto CDC in 2008 comes from a largesample of CDC’s portfolio companies, it isan important indicator of the number ofpeople in poor countries that sustain a livelihood with financial backing fromCDC and the amount of tax revenues thatbenefit local governments from companieswhere CDC’s capital is invested.

Jobs supported by CDC’s capital

676,000 people were employed in CDC’s514 portfolio companies that reportedemployment data in 2008. This represents75% of the total number of companieswhere CDC’s capital is invested. It iscommonly estimated that each workersupports the livelihood of about fourfamily members.22

The bulk of the total number of jobssupported by CDC’s capital were in Asia,with 546,000 people employed in 281portfolio companies. This represented a full 80% of all employment numbersreported to CDC, and covered 80% of all of CDC’s portfolio companies in Asia.


676,000 people employed in the 514 companies thatreported data3

US$2.2bn in tax revenuesgenerated from the 390 companies that reported data4

32% of portfolio companiesin SME funds or micro-finance funds** By number of portfolio companies or microfinance institutions.

Energy & utilities

ICT

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

28/42

42/56

21/29

23/33

112/156

90/119

101/120

28/4410,000

42/48

22/26

5/8

Employment by industry sector

� Number of companies reporting data� Number of total CDC portfolio companies in sector

58,00065,000

106,000

67,000

211,00074,000

27,000

42,000

14,0002,200

Taxes paid by industry sector (US$m)

� Number of companies reporting data� Number of total CDC portfolio companies in sector

Energy & utilities

ICT

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

25/42

38/56

19/29

19/33

46/156

84/119

91/120

20/44375

24/48

19/26

5/8

342350244

179

234280

25

83

1234

Employment by region

1

23

4 5 6 1 Sub-Saharan Africa 95,000 (90/261)

2 China 176,000 (77/93)3 India 179,000 (118/144)4 Other Asia 191,000 (86/111)5 Latin America 20,000 (24/45)6 North Africa 15,000 (19/27)

(number of companies reportingdata/number of total CDC portfoliocompanies)

Taxes paid by region (US$m)

1

23

4

56

1 Sub-Saharan Africa 596 (100/261)

2 China 514 (70/93)3 India 282 (108/144)4 Other Asia 440 (78/111)5 Latin America 400 (22/45)6 North Africa 10 (12/27)

(number of companies reportingdata/number of total CDC portfoliocompanies)


Tax revenues generated fromcompanies supported by CDC’s capital

US$2.2bn in annual taxes was paid byCDC’s 390 portfolio companies thatreported tax data in 2008. Thisrepresented close to 60% of allcompanies where CDC’s capital isinvested. The tax data mostly reflectedtaxes paid in 2007, while in someinstances taxes payable for 2008 was reported.

The largest share of tax revenues waspaid to governments in Asia, withUS$1.2bn in taxes paid by CDC’s 256portfolio companies in the region thatreported such data, representing 70% of CDC’s Asian portfolio companies. SomeUS$600m in taxes was paid by CDC’s100 portfolio companies in sub-SaharanAfrica that reported tax data, representingalmost 40% of CDC’s African portfoliocompanies. US$10m in tax revenues wasgenerated by 12 of CDC’s portfoliocompanies in North Africa that reportedtax data, representing 40% of the totalnumber of companies where CDC’scapital is invested in that region. AlmostUS$400m in tax revenues were reportedfrom CDC’s 22 portfolio companies inLatin America which reported such data,representing 50% of the total number ofcompanies in the region with investmentsfrom CDC.

Through tax revenues generated fromcompanies where CDC’s capital isinvested, governments in developingcountries have a sustainable local sourceof public finance as opposed to the directbudget support or programme grantfinance received from donors. Growingand new businesses are the long termvehicle for developing countries to lift their populations out of poverty.


30,000 new jobs created*

146,000 jobs supported

Only 750 jobs lost

21% net increase in jobs*

76% of portfolio companies*showed an increase in jobs

58% of portfolio companiesincreased EBITDA**

82% of portfolio companiesincreased turnover***

From the evaluation work in 2008, CDCgained more in-depth information aboutthe economic benefits and, in somecases, losses from the companies whereCDC’s capital is invested. To evaluate afund’s economic performance, CDCassessed whether jobs had been createdor lost, the amount of tax revenuesgenerated for local governments, andgrowth in turnover and profitability interms of EBITDA24 from portfoliocompanies. Special consideration wasgiven to small and medium sizeenterprises (SMEs) that for reasons of sizewould have smaller absolute increases toshow. Special consideration was alsogiven to funds or investee companies thatfocused specifically on disadvantagedgroups, such as microfinance for the rural poor.

Seven of the funds evaluated were ratedas successful in terms of economicperformance. Two were rated as excellent and only one was rated asbelow expectations. The 85 companiesevaluated for which employment data wasavailable supported a total of 146,000jobs. 76% of the 85 companies for which data on employment creation wasavailable showed an increase in jobs over the funds’ investment period. Thisrepresented 30,000 jobs created in 65 companies. Only seven companiesshowed a decrease in the number ofemployees, with the loss of 750 jobs. The net increase in employment in thecompanies covered by CDC’s evaluationswas 21%.

For tax data, some companies reportednumbers from the last year withinformation available whilst otherssupplied information for the entireinvestment period. Tax data was availablefrom 80% of the companies covered bythe evaluations. From the 37 companiesthat reported tax data only for the lastyear, US$405m in taxes was generated for local governments. A further US$150m in taxes was paid by the 56 companiesthat reported tax data for the entireinvestment period.

82% of the 96 companies covered by theevaluations for which data was availabledemonstrated growth in turnover duringthe investment period. The averagemagnitude of this growth in turnover was US$27m per company.

An impressive 86% of the 97 companiesfor which data on profitability wasavailable showed positive EBITDA.24

58% had seen an increase in profits over the investment period.

The largest employers

Among CDC’s portfolio companies, thelargest numbers of employees are all inAsia, representing the following sectors:

Jobs Region/ Business sectorCountry

44,300 Asia Mining

43,000 China Agribusiness

38,500 India Industry andmaterials

20,000 China Healthcare

20,000 India ICT

The largest tax payers supported by CDC’scapital are spread over different regions:

Taxes Region/ Business sector(US$) Country310m Asia Mining

250m Latin Energy America and utilities

160m China Agribusiness

120m Sub- ICTSaharan Africa

60m China ICT

Economic performance evaluation results 2008 (%)

1

2

34 1 Excellent 17%, 2 funds

2 Successful 58%, 7 funds 3 Satisfactory 17%, 2 funds4 Below expectations 8%, 1 fund

The largest tax payers

* Data from 85 companies** Data from 97 companies*** Data from 96 companies


ESG performanceIn 2008, CDC intensified its work prior to making commitments to new funds to ensure that fund managers have theproper management systems to addressenvironmental, social and governance(ESG) risks and to help portfoliocompanies realise improvements duringtheir investment duration as stipulated byCDC’s new Investment Code. CDC alsoworked with its fund managers to promotebetter annual reporting on ESG matters.CDC received a much larger number ofESG reports in 2008 than in prior yearsalthough reporting is still notcomprehensive. CDC will continue topromote good ESG reporting practicesduring 2009. This can be a particularchallenge for funds where CDC is a smallinvestor among commercial investors.

During 2008, CDC’s investment staff andspecialist ESG advisor made a number of visits to fund managers and theirportfolio companies for the purpose ofverifying how high risk assets were beingmanaged from an ESG perspective. CDCconcluded that most of its fund managersare managing ESG matters satisfactorily,whilst some of them need to put furtherefforts into upgrading their ESGmanagement systems. CDC will continueto work with fund managers and theirinvestee companies on ESG mattersduring 2009. CDC also plans to update its Toolkit on ESG for Fund Managers toreflect the new Investment Code and tointroduce two new chapters on how to manage climate change risks andopportunities and how businesses canimprove upon their practices from thegender perspective.

Evaluation results 2008

71% of portfolio companieshad ESG issues at investment

86% of portfolio companiesmade improvements on ESG practices during theinvestment period

All of CDC’s 12 evaluations concludedthat funds were at a satisfactory level orbetter on ESG performance. CDCassessed how fund managers had workedwith their portfolio companies to identifyESG risks and issues at the time ofinvestment, and to bring about improvedESG practices during the investmentperiod. One of the evaluations was ratedas excellent, the highest category, fromthe ESG perspective. The fund managerin question had been instrumental inimproving ESG practices throughout its portfolio of 19 Indian companies,including several large companies in highrisk sectors such as mining and provisionof security services, one large scale shipconstruction company with remotelylocated workers, and a start uppharmaceutical company, which hasgrown to become a leading genericsupplier for U.S. and Europeanpharmaceutical companies by meetingthe highest international standards for drug production.

All seven fund managers covered byCDC’s evaluation work were consideredto have satisfactory or high quality ESGmanagement systems for theirinvestment activities.

At the time when the evaluations wereconducted, the ESG managementsystems of the portfolio companiescovered had been improved to a pointwhere 70% of companies wereconsidered to have high quality ESGmanagement systems. 27% of theportfolio companies were considered to have ESG management systems of satisfactory quality and 3% were still considered to have poor ESGmanagement systems.

71% of the 99 portfolio companies thatwere assessed on ESG performance hadfaced some type of issue from an ESGperspective before the fund managers’investment or during the investmentperiod. Some companies had facedissues in more than one area:

• 31% of the companies neededimprovements in environmentalmanagement;

• 39% of the companies had experiencedissues from the social perspective,mostly in terms of inadequate healthand safety standards, but also othermatters related to labour and workingconditions or other social matters; and

• 39% of the companies had reasons toimprove corporate governance.

86% of the 99 portfolio companies thatwere assessed on ESG performance had demonstrated improvements in ESG practices:

• 33% had demonstrated improvementsin environmental management;

• 39% showed improved practices fromthe social perspective; and

• an impressive 63% had undertakenimprovements in corporate governance.


ESG performance evaluation results 2008 (%)

1

2

3 1 Excellent 8%, 1 fund2 Successful 59%, 7 funds3 Satisfactory 33%, 4 funds

Ratings of portfolio companies ESG management systems (%)

1

2 3 1 High 70%2 Satisfactory 27%3 Poor 3%

Ratings of fund managers ESG management systems (%)

1

2

1

2 1 High 67%2 Satisfactory 33%


Often, CDC’s fund managers wereinstrumental in initiating and implementingsuch improvements in portfoliocompanies’ ESG practices.

Examples of ESG issues andimprovements covered by CDC’sevaluation work are provided below:

Environmental management,environmental products and clean technologies:

• India: An Indian producer of automotivelighting in CDC’s investment portfolioalso produces compact fluorescentlamps, which use up to 90% lessenergy than regular lamps. Thecompany is looking to promote the useof these less environmentally damaginglamps by securing governmentcontracts for lighting rural villages. Thefirm is also looking into how it couldbenefit from carbon credits. Wastagehas been substantially reduced. Theoperations director of this companycommented to CDC that less wastageled to stable costs, despite rising raw material prices.

• Zambia: A fund manager’s duediligence of an industrial company inZambia included an environmental auditwhich found environmental deficiencies,including weak management of effluentand surface water. An environmentalmanagement plan was drafted toaddress these shortcomings, which is currently being implemented.

• India: An Indian producer of concretelacked sensitivity to environmentalmatters prior to the investment byCDC’s fund manager. The fundmanager worked with companymanagement to transform the plant’senvironmental practices, including theintroduction of sprinklers to reduce dust,planting of trees and grass, catchmentand recycling of water, and treatment of water before release.

• Nigeria: Whilst one fund manager had not performed an environmentalimpact assessment at the time of itsinvestment in a Nigerian materialscompany, the fund managersubsequently assessed the quality of air and waste water, which led to theinstallation of new extractor fans andnew roof ventilation to improve airquality in the factory.

• Microfinance: A microfinance fundmanager had invested in severalfinancial institutions which in turnfinanced less environmentally damagingbusinesses. Examples include:

– a plastics company which collectsplastic waste and recycles it to useas raw material in manufacturing;

– a chalk powder supplier that makeschalk powder from broken ceramicsand glass that it collects andrecycles;

– a compressed natural gas refuellingplant;

– three small hydro-projects in Armenia;

– the construction of a waste to energyplant in the Philippines; and

– replacing coal-fired machines withequipment based on liquefiedpetroleum gas.

• Gambia: A bank in the Gambia usessolar energy cells to power its customerservice kiosks throughout the country.

• Mongolia: A bank in Mongolia receivedan award for a project to finance a blindpeople’s labour training factory whichrecycles cotton bags.

• India: An Indian manufacturer of highquality non-ferrous metals sources itsproducts from recycled zinc fromdifferent industries, rather than new zincmining. It has introduced a new processfor chemical and physical purification ofrecovered zinc, which would otherwisemost likely have been discardedwithout recycling. It has an effluenttreatment plan for liquid wastes andstrictly adheres to regulations for solid effluent.

• Fiji: One portfolio company in Fijicapitalised on the environmentallyfriendly use of senile (i.e. no longerproducing) palms. The company startedto collect palms that would otherwisehave been left to rot and to use thesefor furniture manufacturing. Thecollection of such palms, often fromremote parts of Fiji’s two main islands,represents a vital source of income for woodcutters and a link betweeninformal and formal markets.

Social matters

• Ghana: At a Ghanaian biscuitmanufacturer, CDC’s fund managerdiscovered during interviews withmanagement that workers were beingchecked for HIV/AIDS without theirknowledge or consent during medical


screenings provided by the company.The same was discovered by CDC’sstaff during a meeting with themanagement of a printing company in Kenya. CDC’s fund managersemphasised to the management of these companies that HIV/AIDSscreenings have to be voluntary and confidential.

• Senegal: For a Senegalese firm dealingin automotives, an explosion of a circuitbreaker in the energy equipmentprovided to a client killed one workerand seriously injured two others in2008. An external consulting companywas contracted to investigate theincident, and determined that althoughappropriate controls and procedureswere in place, supervision had been lax.The report recommended that the firmbecome more stringent in ensuring thatworkers would comply with health andsafety rules and procedures, and toundertake workshops to increase riskawareness. CDC’s fund manager whichinvested in this company currentlymonitors the implementation of theseimprovements.

• Services and construction sectors:When performing due diligence prior to investments, several of CDC’s fundmanagers discovered a lack ofadherence to national, regional orindustry sector minimum wagerequirements in companies in theservice and construction sectors. For portfolio companies in Asia as wellas in sub-Saharan Africa, CDC’s fundmanagers insisted upon increasedwages for workers to adhere tominimum wage levels as a conditionbefore making investments.

• India: An Indian company in CDC’sinvestment portfolio has won praisefrom the Confederation of IndianIndustry for spreading best practicestandards across its suppliers,consisting of 941 companies. Thiscompany also has several corporatesocial responsibility initiatives, includingproviding equipment for rural schoolsserving neighbouring villages; and‘adopting’ a village where it financedschools, construction of roads andhealth checkups. Within its own plants,this company provides vocationaltraining and has an awarenessprogramme for HIV/AIDS. It is one ofthe few companies in India to have SA8000 (social accountability) certification.

• Nigeria: An investee company providingcash transport services across Nigeriasuffered from a number of robberies,which led to two fatalities amongst itsemployees in 2008. In response tothese fatalities, the companyimplemented a convoy system, which isin place today. CDC has pointed out tothe fund manager that invested in thiscompany that such a convoy systemshould have been implemented as thiswould be an appropriate method forcash transit in the insecure region ofEastern Nigeria.

• Papua New Guinea: A plantation in Papua New Guinea, where CDC’scapital was invested, created atownship for its workforce, providedhousing, water and electricity foremployees, and supplied medicalservices and education for theemployees’ children.

• MTN Nigeria: Where CDC is investedthrough its fund manager AfricanCapital Alliance, has set up afoundation to implement its corporatesocial responsibility programme whichis funded by an annual grant from MTNrepresenting 1% of corporate profits.The MTN Foundation focuses on threekey areas: education, economicempowerment and health. It partnerswith international and local NGOs to implement its projects.

• India: For an Indian retail chain, CDC’sfund manager had identified multiplesocial risks at the time of investmentand subsequently addressed thesematters before selling the business. The social issues identified at the time of investment included someemployees being paid below theminimum wage, poor workingconditions in a distribution centre and a general lack of focus on labourconditions. CDC’s fund managercorrected the wage issue the first weekafter its investment. The fund managersubsequently increased the emphasison sound labour practices by recruitingan HR manager and introduced new HRprocesses, including a compensationstructure properly aligned withapplicable wage levels, as well ashealth and safety training. Workingconditions in the distribution centrewere swiftly improved, with a majorupgrade in hygiene and safetystandards.



Corporate governance and business integrity

• India: One fund manager wasinstrumental in improving corporategovernance at some of the largercompanies in India. Althoughcommonly believed that it is smallcompanies that require the mostoversight, recent scandals in India and other countries have illustratedotherwise. For its portfolio companies,this fund manager has been active inappointing independent boardmembers (in five instances), assistingthe management team in strengtheninginternal controls and processes (inseven instances), and improving thequality of transparency of financialreporting (in three instances). The fund manager has also been activelyinvolved in assisting its portfoliocompanies to improve investorrelations, with a view towards greaterinvestor transparency and propercommunication of financial andcorporate information.

• SMEs and microfinance: Another fund manager, which invests in SMEsand microfinance institutions (MFIs),also pays considerable attention tocorporate governance matters in its due diligence work and throughout the investment period. For a MFI inUganda, this fund manager workedextensively post-investment onimproving corporate controls and risk management systems, financialreporting standards, and thecomposition of the board andmanagement team. Prior to theinvestment by CDC’s fund manager,this MFI was an unregulated

microfinance lender backed by NGOs.CDC’s fund manager assisted it totransform itself into a commercially runregulated microfinance provider, whichwas eventually acquired by a Kenyanbank looking to expand regionally.

• Kenya: An essential part of goodcorporate governance is to focusattention on business integrity mattersamong portfolio companies. During avisit by CDC’s staff to a Kenyan printingcompany, its managing director toldCDC that the investment by CDC’s fund manager enabled him to enforcezero tolerance on corrupt paymentsthroughout his company; “I tell thebuyers who expect a kickback that ourinternational investor just will not acceptsuch practices.”

• China: A fund manager for CDCin China has realised multipleimprovements in corporate governanceacross its portfolio companies, helpingto recruit experienced professionals tostrengthen management teams (in twoinstances), helping to recruit new, fullyqualified CFOs (in two instances),establishing a professional finance and accounting team (for one portfoliocompany), and reviewing internalcontrol systems for ISO:9000certification (for another portfoliocompany).

• India: Actis, CDC’s single largest fundmanager, is working with the CEO ofthe National Stock Exchange (NSE) of India, in which it holds a 1%shareholding, to have the NSE promoteESG issues amongst listed companiesin India and to bring together ESG-sensitive investors with listedcompanies through forums, investordays and panels. The Indian NSE hostsan ESG index consisting of companiescommitted to high ESG standards,which is the first investablesustainability index in India.


Serious incidents involvingCDC’s portfolio companiesduring 2008CDC’s capital is invested in 681companies. 75% of these companiesreported employment data last year, andwe know that they employ more than676,000 people. Given such largenumbers and the inherent risks involved inbusiness operations in the often looselyregulated developing world where CDC’sfund managers invest, it is notunexpected to learn that a number ofCDC’s fund managers have sufferedfatalities and other serious incidents intheir portfolio companies. CDC requiresits fund managers to report without delayany instance involving portfoliocompanies which result in loss of life,material effect on the environment, ormaterial breach of law and how theseinstances were dealt with. CDC takeseach notification very seriously, andfollows up with the relevant fund managerto ensure that appropriate action is takenin a timely manner, and that any underlyingsystemic reasons for the incidents arecorrected by the portfolio company.

During 2008, eight fund managersreported one or more serious incidents toCDC. A total of 41 fatalities were reported,as well as one environmental incident and three cases of alleged fraud. Oneongoing fraud allegation was pursuedduring the year.

Of the fatalities reported to CDC in 2008, 17 arose from Umeme, a powerdistribution company in Uganda. Umeme suffered from many years of underinvestment in its distributionnetwork before CDC invested in thecompany in 2005. CDC’s fund managerActis is urgently taking steps to addressthis serious matter. An investmentprogramme has been agreed and healthand safety procedures improved upon.Whilst acknowledging that it will take time to bring the network up to internationallevels of safety, CDC requires evidencethat remedial measures are being takenon a continuous basis and is expecting to see steady improvements over time.The Umeme investment is explained infurther detail as a case study in chapter 7,under Energy and utilities.

17 of the remaining 24 fatalities wereaccidents at work. Examples includedthree deaths caused by lightning, a deathcaused by the electric shock of a securityguard on duty, a lift accident, a workerkilled by electrocution while performingwelding during the monsoon season, the death of a taxi driver from speeding,and the death of a worker in the processof hanging advertising billboards. In allcases, CDC’s fund managers have takenaction to prevent reoccurrence. Fivefatalities arose from security incidents;almost all of them attempted robberies.The remaining two deaths were non-workrelated murder cases, where fundmanagers have followed investigationsclosely.

Three incidents of fraud or suspectedfraud were uncovered during 2008 incompanies where CDC’s capital isinvested. In one case in Zambia, the firm’sboard terminated the employment of theCEO. CDC’s fund manager is monitoringfuture developments. Criminal and civilproceedings are underway of a portfoliocompany in Asia where the founder CEOwas utilising a large part of investmentproceeds to settle inter-company debts.One fraud incident at a portfolio companyin the Pacific islands was resolved byreplacing the financial controller. In a casewhich has been running for some years,dating back to the time before CDC’sinvestment, proceedings are underwaywith respect to Alexander Forbes’ South African subsidiary to investigateallegations of misuse of corporatepension funds.

CDC’s fund manager Aureos explicitly set out to address previous adverseenvironmental issues at Aluminio dePanama in 2008. Aureos is currentlyoverseeing the implementation of a lessenvironmentally damaging powdercoating process instead of the previous anodizing process.

Many of CDC’s new fund managers havenot reported any serious incidents. CDC iscontinuing to work with all fund managersto promote timely reporting of andresponse to serious incidents. Eventhough many portfolio companies havenot suffered serious incidents, it is ofcritical importance that CDC’s fundmanagers engage early on to ensure goodpractices and preventative measures.


Summary of seriousincidents in 2008:

17 work related fatalities

24 non-work related fatalities

1 serious environmental issue

4 instances of alleged fraud

From CDC’s newInvestment Code:

“CDC requires its fundmanagers to promptly inform CDC about incidentsinvolving portfolio companiesthat result in loss of life,material effect on theenvironment, or materialbreach of law, and anycorrective actions taken.”


Private sector developmentAcross its investment portfolio, CDCrecords information to indicate whether its fund managers are contributing to thestrengthening of local capital markets andwhether they are successful in attractingfurther investors to developing countries,most importantly additional capital fromcommercial investors. Through theevaluation work, CDC collects furtherinformation about broader reachingprivate sector development benefits fromits investments. Such benefits includeother contributions to developing localcapital markets; expansion of businessesor investments across several low incomecountries or poor regions within largecountries such as India, China, SouthAfrica and Nigeria; and the wide range of positive effects for consumers fromexpanded and improved access to goods,services and infrastructure and better andcheaper products and technologies.

Local capacity building for strongercapital markets in poor countries

Among CDC’s 52 fund managers thatinvest directly in companies25 all but oneoperate from local offices in emergingmarkets. Many of CDC’s fund managershave several offices, including Actis andAureos which have 11 and 25 offices,respectively, in emerging market locations.In total, CDC’s fund managers haveoffices in 34 different countries indeveloping countries, 14 of these are in low income countries. The offices ofCDC’s fund managers, which are mostlystaffed with local investment professionals,make an important contribution tostrengthening local investment capacitiesin countries where capital markets aretraditionally weak and underdeveloped.

Many of CDC’s fund managers were thevery first to undertake private equityinvestments in their markets, introducingrisk capital to allow local businesses torealise their expansion potential.Examples include Aureos, whichpioneered SME investments in East Africain the late 1990s, African Capital Alliance,which managed the first private equityfund in Nigeria, and GroFin and BusinessPartners, which are still largely alone inproviding capital for very small companiesthroughout Southern and East Africa.

42% of CDC’s fund managers aremanaging private equity funds for the firsttime. Supporting such first-time fundmanagers is often considered to be veryrisky by commercial investors. CDC’swillingness to engage with new fundmanagers is an important contribution to the development of strong investmentcapacities in the developing countrieswhere these fund managers are located.CDC works closely with its first-time fundmanagers to ensure that they implementhigh standards from all perspectives when investing capital from CDC andother investors, including from theenvironmental, social and governance(ESG) perspectives.

Increasing amounts of capitalcommitted alongside CDC in emerging markets

The amount of third party capitalcommitted alongside CDC has expandedexponentially during the four years sincethe creation of Actis and Aureos, fromUS$2.8bn invested alongside CDC in2005 to a total of US$21.2bn in capitalinvested alongside CDC at year-end 2008.

Actis and Aureos, the two new privateequity fund managers for emergingmarket investing that were spun out ofCDC, raised much more third party capitalthan the target of US$953m set by theDepartment for International Development(DFID) in 2004. Actis has raised a total ofabout US$2.9bn, almost entirely fromcommercial investors. Aureos has raisedUS$575m of capital from investors otherthan CDC, with more investments fromother development finance institutions(DFIs) than from commercial investors,reflecting the fact that private capital is still reluctant to focus on SMEinvestments in poor country markets. DFI investments in Aureos’ funds accountfor US$427m, while Aureos has raisedUS$148m from commercial investors.

DFI and commercial third party capital(US$) invested alongside CDC

Other DFI capital Commercial capital

926

19,718

1,433

Aureos Actis Other fund Totalmanagers

575m

2,869m

17,708m21,151m

DFID TargetUS$953m

427

2,789

80

148

16,782

All except one of CDC’s 52 private equity fundmanagers have local officesin 34 developing countries

CDC’s seven microfinancefund investors invest in localmicrofinance institutions

42% are first time fundmanagers


Meanwhile, CDC’s other 57 fundmanagers have US$17.7bn in third partycapital committed to their funds alongsideCDC’s investments. Capital from otherDFIs accounts for only US$926m of thetotal. For some of these funds, CDC hadan instrumental role in attracting otherinvestors, as demonstrated by CDC’sevaluation work in 2008. For other funds,CDC has had an important role instrengthening fund managers’ awarenessand commitment to responsibleinvestment and business practices fromthe ESG perspective.

24% of CDC’s fund managers have so far been successful in raising successorfunds after CDC invested with them,continuing their work to bring increasingamounts of capital to poor countrymarkets and expanding the financingavailable for businesses in these countriesto realise their growth potential.


83% of fund managersraised a successor fund

US$1.1bn in successor funds

CDC’s evaluation work in 2008 illustratedthe multiple ways that companies in poorcountries contribute to private sectordevelopment. All of the evaluations ratedthe 12 funds that were assessed assatisfactory or better on private sectordevelopment contributions. Three fundsreceived the highest rating, excellent.

Local capacity building:

All except one of the fund managerscovered by the evaluations had localoffices in emerging markets, many ofthem operating from multiple differenthubs in low income countries. Officelocations for the fund managers coveredby the evaluations included Lagos, Nairobi,Johannesburg, Mauritius, Port Moresby,Karachi, and several offices throughoutIndia and China. The sole exception was aU.S. based microfinance fund investor,although all of the microfinanceinstitutions in which this manager investshave offices in developing countries.

Third party capital:

The amount of capital invested alongsideCDC varied greatly between the 12 fundsevaluated, as did the amount of capitalfrom development finance institutions(DFIs) as opposed to commercialinvestors. In total, US$1.7bn in capitalwas invested alongside CDC in these 12 funds. US$734m of this amount wasfrom commercial investors invested in onelarge growth capital fund in India. Threeother funds had capital from commercialinvestors in excess of US$100m, two ofthem investing in India and one of them inChina. The African funds covered by theevaluations were both smaller and hadmore DFI investors than the Asian funds.Other DFIs invested with seven of the 12 funds evaluated, with an aggregatecommitment of DFIs other than CDC of US$140m.

83% of the fund managers had beensuccessful in raising successor funds.Often, such funds were being raised at thetime when CDC conducted its evaluations.Evaluation results were used by CDC’s

investment committee to inform decisionsof whether or not to commit further capitalto these fund managers.

Examples of some of the broad, privatesector development benefits that wereidentified by CDC’s evaluation work in2008 are reported below. Furtherexamples of the benefits of thrivingbusinesses across all regions and sectorsare provided in the subsequent regionaland industry sector chapters.

Addressing capital market failures:

• Angola: The poor access to finance forSMEs in Southern Africa outside ofSouth Africa has improved substantiallyduring the last five years. One of thefunds included in the evaluations waspart of addressing this market failure. A SME investment in Angola in 2002, at the time when the country was justregaining stability after the end of itscivil war, can be considered particularly“pioneering”.

• South Africa: The same fund investedin Real People, a South African financialinstitution for previously disadvantagedcommunities. Real People, assisted bythe credit line from CDC’s fundmanager, helped to bring about adramatic increase in access to financefor such groups. CDC’s fund managersourced ZAR100m in credit lines forReal People. The company hassubsequently been able to increase itsaccess to credit by over ten times. OldMutual Investment Group, one of thelargest investment firms in South Africa,has recently acquired a 25% equity stakein Real People, demonstrating that creditfor previously disadvantaged communitiescan be attractive for trade buyers.


Private sector developmentevaluation results (%)

1

23 1 Excellent 25%, 3 funds

2 Successful 67%, 8 funds 3 Satisfactory 8%, 1 fund


Expansion into low income countriesand poor regions:

• Sub-Saharan Africa: Several of CDC’sfund managers have contributed to the positive trend towards increasingbusiness activities across differentAfrican countries and regionaleconomic integration. One of CDC’sfund managers in West Africa wasinstrumental in helping several of itsportfolio companies expand into newcountries. For example, the fundmanager helped one of its portfoliocompanies, a Nigerian leasing business,to acquire a company in the samesector in Ghana, thereby establishingthe foundation for regional expansion.The fund manager is currently helpingthe merged company to expand acrossWest Africa. The same fund managerhelped two of its Ghanaian portfoliocompanies expand into Togo and SierraLeone, respectively. A Nigerian oil andgas drilling tools rental business in thisfund manager’s investment portfoliohas recently opened offices in Ugandaand Ghana.

• Indian companies expanding into sub-Saharan Africa: Two large miningcompanies in the investment portfolioof one of CDC’s Indian fund managershave initiated expansion activities intosub-Saharan Africa; in the case of a coalmining company, through ventures intoEthiopia and Tanzania, and, in the caseof a zinc processing company, througha zinc sourcing concession in theDemocratic Republic of Congo (DRC).The new Ethiopian venture is expectedto create 580 local job opportunities.The Congolese operation currently has150 employees, and will be further

developed over the next few years, with subsequent benefits for localemployment and tax revenues.

• Sub-Saharan Africa: Several of theAfrican financial institutions whereCDC’s capital is invested have startedto build a regional presence. A Kenyanbank has expanded into Uganda,Rwanda and is looking to set upoperations in southern Sudan and DRC.A Kenyan microfinance institution has expanded into southern Sudan.

Expanding availability of goods,services and infrastructure – at lowercost and better quality:

• Sub-Saharan Africa: A rapidlyexpanding retail chain among CDC’sinvestee companies in Kenya hasstarted to open stores also inneighbouring Tanzania, playing animportant role in bringing professionalretailing to these previouslyunderserved East African countries. The company’s new stores benefit thelocal consumers in terms of increasedavailability of a range of products atlower price, thanks to the retail chain’seconomies of scale. CDC’s fundmanagers’ investments in retail malls in Ghana and Nigeria have similarlyexpanded access and choice forconsumers in West Africa.

• Nigeria: Two Nigerian transportationcompanies with investments fromCDC’s fund managers have helped to connect different regions in Nigeriawith its neighbouring countries andinternational capitals. One of thesecompanies operates bus transportservices throughout Nigeria and West

Africa. The other company is VirginNigeria, which now flies to eightNigerian cities as well as to sevencapitals in West and Central Africa.Previously, air transport was severelyunderdeveloped within the region,forcing travellers from one country inWest Africa to another to fly throughLondon or Paris.

• India: In 2005, the Indian governmentannounced a new FM radio policywhich reduced the radio licensing feeand issued 337 new licences for 91cities. Today, the nascent radio industryaccounts for 3.3% of annual mediaspending in India which is aboutUS$5.5bn. The radio industry isbooming, with an annual growth rate of39% compared to overall annual mediaexpansion of 19%. One of CDC’sportfolio companies, Radio City, is oneof the radio companies that benefitedfrom the Indian media deregulation. It currently provides 10 million dailyIndian radio listeners with a diverse andhigh quality programme offering.

Local production and ownership ofeconomic resources:

• Mauritius: An investee company of oneof CDC’s fund managers in Mauritiusestablished and built the first rice millingplant in the country for convertingbrown rice into white. Previously, allwhite rice had to be imported. Thiscompany has also made importantfinancial contributions to a fund set up by the Mauritian government for thedevelopment of local infrastructure andthe preservation of the local environment.

Fund 1

Fund 2

Fund 3

Fund 4

Fund 5

Fund 6

Fund 7

Fund 8

Fund 9

Fund 10

Fund 11

Fund 12

10

09

0

126

0

0

38

0

32

Third party capital raised per fundevaluated (DFI excluding CDC,US$m)

Fund 1

Fund 2

Fund 3

Fund 4

Fund 5

Fund 6

Fund 7

Fund 8

Fund 9

Fund 10

Fund 11

Fund 12

20

2253

734

125

145

11

0

400

1

Third party capital raised per fundevaluated (non DFI commercialinvestors, US$m)

31 6

MTN Nigeria: Driving the Nigerian mobiletelephony revolution

When CDC invested in MTN Nigeriathrough African Capital Alliance (ACA) in2001, the company was a start-up, andthe Nigerian mobile telephony market wasunderdeveloped with a total telephonepenetration rate of less than 0.5%. At this time, there were only about 400,000mobile phone subscribers in Nigeria.During ACA’s investment in MTN, the number of mobile phone subscribersin Nigeria exploded to an estimated 56 million users today. MTN accounts for 20 million of these new subscribers.

Between 2001 and 2008, MTN Nigeriainvested US$1.8bn in mobile telephonyinfrastructure throughout Nigeria. Nigeria’steledensity (the number of telephone linesper 100 people) increased from 0.7 to 4126

during this time. MTN Nigeria now providesmobile telephony services to 223 Nigeriancities and towns as well as to more than10,000 villages and communities acrossthe country, with a 40% total market share.

MTN directly employs 1,900 people, andhas created an estimated 20,000 indirectjobs across support sectors, includingcommunication towers maintenance andthe sale of handsets and accessories.

The telecommunications sector in Nigeriacontinues to grow at 15 to 20% per year.With a rapidly expanding populationcurrently estimated at 148 million, Nigeriastill has vast potential for continuedgrowth in mobile telephony andassociated services from its currentmobile penetration rate of about 35%,with corresponding benefits for peoplethat for the first time can access all of the new opportunities associated withmodern mobile communication.

CITIC Capital PartnersChina Fund: Privatisation of state ownedenterprises

State owned enterprises (SOEs) still play a significant role in the Chinese economy.Such companies are usually inefficient,overstaffed and overcapitalised, andthereby act as a brake on sustainableeconomic growth and competitive privatesector development.

Privatisation and restructuring of SOEs in China and elsewhere lead to moreefficient operations and better allocationof capital within and between businesses.Privatised companies are better equippedto compete in global markets, andthrough increased international anddomestic sales, expand their businesses,number of employees and tax revenuesfor local governments. Sometimes, jobshave to be shed initially during aprivatisation for a company to becomecompetitive and thus survive and expandin the medium to long term. Overall,privatisation of SOEs creates a morecompetitive business environment, a keyaspect of private sector development.

CITIC Capital Partners China Fund is aUS$425m fund raised by CITIC Group, alarge Chinese financial servicesconglomerate, which was set up in 1979by the Chinese government to facilitateforeign direct investment. The fund’sinvestment focus is the privatisation ofSOEs. CDC invested with CITIC in 2006.

One investment in the CITIC portfolio,Harbin Pharmaceuticals, is a manufacturerof antibiotics, over-the-counter medicineand traditional Chinese medicines. SinceCITIC’s investment in 2006, Harbin hasinitiated and completed far reachingoperational improvements and rapidlyexpanded its sales. Over the last two years,Harbin has grown from being the fifthlargest manufacturer of pharmaceuticalsin China to the market leader.



• Nigeria: Investments in Nigerian firmsby one of CDC’s fund managers havestrengthened the trend of local firmsplaying a bigger role in the Nigerian oiland gas industry. The indigenisation ofthe Nigerian oil and gas industry, whichhistorically has been dominated bylarge, international companies, is a positive trend for private sectordevelopment in Nigeria.

Improved standards and regulations:

• India: India’s police force is thinlystretched to protect its population, withonly 1.5 police agents for every 1,000citizens. Consequently, India has thelargest number of private securityservices companies in the world, whichis expected to generate one million newjobs annually. Unless properly trained in community safety and the use ofweapons and force, security guards can pose a major threat to the localcommunity. Such training waspreviously not mandatory in India.Neither were mental health checks andchecks of prior criminal records. One of CDC’s fund managers has investedin a rapidly expanding Indian securityservice provider, which has broughtinternational training standards to itsIndian security guards. This companyhas subsequently successfully lobbiedthe Indian government to introduce new legislation that stipulates basicregulations for the industry. Thecompany as a result enlisted a largenumber of multinational customers and is adding thousands of people to its payroll every month.

Sub-Saharan Africa is and hasalways been the most importantinvestment destination for CDC. This is the region that lags behind the rest of the world in reducing poverty andwhich suffers disproportionatelyfrom lack of foreign directinvestments. Asia is anotherimportant investment region for CDC. India, with the largestnumber of poor people in theregion, dominates CDC’s Asian investment portfolio.

Going forward, CDC will invest half of its capital in sub-Saharan Africa and 75% in lowincome countries. This meansan ever-increasing focus on the poorest countries in Africa,India and other low incomecountries in South Asia.

Regional reviews 6Chapter


Chapter 6 – Sub-Saharan Africa

Sub-Saharan Africa, home to a largerproportion of poor people than any otherregion of the world, has made steadyprogress over the last decade and achieveda sustained average economic growth rateof over 5%. Most economists forecast ahigher average growth rate for sub-SaharanAfrica than for most economies in Europeand the Americas for 2009, notwithstandingthe global financial crisis.27


261 portfolio companies in 28 countries

£160m invested by CDC in 2008

95,000 people employed inthe 190 portfolio companieswhich reported data in 200828

US$596m in local taxeswere paid by the 100portfolio companies whichreported data in 200829

18 of CDC’s fund managersinvest in sub-Saharan Africa

CDC’s fund managers have investments in 28 countries in sub-Saharan Africa


15–25 investments

6–15 investments

1–5 investments

MALAWI

MAURITANIA

MOZAMBIQUE

NIGERIA

RWANDA

SENEGAL

SIERRA LEONE

SOUTH AFRICA

SUDAN

SWAZILAND

TANZANIA

TOGO

UGANDA

ZAMBIA

ANGOLA

BENIN

BOTSWANA

BURKINA FASO

CAMEROUN

CONGO (DEMOCRATICREPUBLIC)

CÔTE D’IVOIRE

DJIBOUTI

GABON

GAMBIA

GHANA

KENYA

LIBERIA

MADAGASCAR

Chapter 6 – Sub-Saharan Africa 47

Development progress and challenges ahead

Sub-Saharan Africa, home to a largerproportion of poor people than any otherregion of the world, has made steadyprogress over the last decade andachieved a sustained average economicgrowth rate of over 5%. Most economistsforecast a higher average growth rate forsub-Saharan Africa than for mosteconomies in Europe and the Americasfor 2009, notwithstanding the globalfinancial crisis.27

The relatively positive growth prospectsfor sub-Saharan Africa as a region comeagainst a history of economic stagnation,with chronically high unemployment andpersistently high poverty rates. 50% of the population in sub-Saharan Africa livebelow the poverty line,15 representingmore than 400 million people. This makesup about 30% of all poor people in theworld. In accordance with currentprojections, sub-Saharan Africa is laggingbehind other regions in reducing theproportion of poor people as a share ofthe total population. By current WorldBank projections, 37% of the continent’spopulation will still be poor in 2015. Thisleaves sub-Saharan Africa way behind allother regions in achieving the MillenniumDevelopment Goal to halve, by 2015, theproportion of people living on less thanUS$1 per day.

Around 40% of the people in sub-SaharanAfrica are not employed in the formallabour markets.30 Many survive onoccasional or seasonal labour, small salesactivities or subsistence farming. Theproportion of people employed in sub-Saharan Africa has only increased slightly

over the last 15 years. Employmentconsidered to be vulnerable, in terms ofworkers that are less likely to have accessto social security, income protection andeffective coverage under labour legislation– and thus more likely to lack criticalelements of decent work according to theInternational Labour Organisation (ILO),represents a 75% share of all workers in sub-Saharan Africa. For women, thefigures for employment as well as forvulnerable employment are substantiallyworse than for men.30 Labour productivityin sub-Saharan Africa is still the lowest inthe world, although some progress hasbeen made during the last decade.Without the creation of further jobs fromnew and expanding businesses, Africanswill not be able to raise their livingstandards and lift themselves and theirfamilies out of poverty.

The global recession is taking its toll onAfrican businesses, although until nowless severely than in Europe, the Americasand Asia. The global economic downturnhas brought a 15% decline in SouthAfrican exports. Countries in sub-SaharanAfrica that depend heavily on commodityexports can expect to continue to sufferduring 2009, and possibly also over thenext two years, depending on the severityof the current recession.

The countries in sub-Saharan Africa thatcurrently experience locally driven growthin sales and revenues are less vulnerableto the current global economic crisis.Diversification into manufacturing andother higher value-add business sectors,as well as agricultural production for localconsumption, can partly drive sustainedeconomic growth across Africa. SouthAfrica, while a major exporter of minerals,

also has a widely diversified economy and a strong manufacturing base. SouthAfrican imports and investments are majorfactors behind the positive economicdevelopments for other countries insouthern Africa. Nigeria plays a similarrole for West Africa, and Kenya partly so for East Africa. A recent survey by the professional services firmPricewaterhouseCoopers (PwC) showsthat business leaders in East Africa werethe most optimistic in the world aboutgrowth possibilities, with more than halfpredicting increased revenues in 2009.The PwC survey found that 51% of EastAfrican corporate leaders were confidentabout revenue growth for 2009. 58%predicted increases in sales over the nextthree years. Most CEOs in East Africacovered by this study regard maximisingreturns from existing markets as theirmain opportunity for growth, sending anoptimistic message about overall growthprospects for East Africa. Only 11% of thebusiness leaders interviewed expected tohave to cut staff levels. Rather, concernsabout political turbulence exceededworries about the global recession amongcorporate leaders in East Africa.

A number of major issues still impedeeconomic growth prospects for sub-Saharan Africa. The region as a whole israted as the most difficult in the world interms of ease of doing business by theWorld Bank and the IFC.31 Corruption isstill a major factor in day-to-day businessdealings in many countries. The region,especially Southern Africa, is ravaged bythe HIV/AIDS pandemic, with infectionrates between 15 and 20% for somecountries, including Zambia, Namibia andSouth Africa. Malaria is also a major killerof Africans, with more deaths still caused

CDC’s investment universe in Africa

Low income

Middle income

Largest investment destinations by number of portfolio companies

Côte d’Ivoire Ghana Kenya Mozambique Nigeria South Africa Tanzania Uganda

7 9

39 44

1

38

126

Largest investment destinations by value (£m)

Côte d’Ivoire Ghana Kenya Mozambique Nigeria South Africa Tanzania Uganda

16 1231

111

22

90 85

39


by malaria-carrying mosquitoes than the HIV virus. Some countries, includingSudan, Zimbabwe and the DemocraticRepublic of Congo (DRC) suffer fromconflicts and lack of representativedemocracy. Other impediments forbusinesses in sub-Saharan Africa includelack of access to financial services andpoor infrastructure. With about oneseventh of the world’s population, Africagenerates only about 4% of the world’selectricity, three quarters of which is usedin South Africa and northern Africa. Mostbusinesses are forced to rely on costlygenerators rather than regular access to power. In Kenya, 70% of businessesoperate their own power generators.Energy as a share of the total cost ofdoing business in many countries,including Tanzania, is as high as 10%.Small and medium size enterprises(SMEs) are particularly affected, as many cannot afford the significantcosts involved.32

CDC’s investments in sub-SaharanAfrica

Sub-Saharan Africa is and has alwaysbeen the key investment market for CDC.By the end of 2008, CDC had a totalportfolio value of £466m invested in 261companies across the region. Investmentsin sub-Saharan Africa make up half ofCDC’s total portfolio value. US$1.8bn in new capital from CDC was committedto private equity funds during the last fiveyears for investments in sub-SaharanAfrica. CDC is now the single largestprivate equity investor in sub-SaharanAfrica, accounting for 14% of the totalfunds raised for investments in the regionbetween 2003 and 2007, according toCDC’s estimates.

95,000 people are employed in CDC’s 190portfolio companies in sub-Saharan Africawhich reported employment numbers in2008, representing 70% of CDC’s totalportfolio companies in the region.28 Foreach person employed, the livelihoods of an estimated additional four personsare assured.22 Through its investments in commercially strong companies, CDC is thus an important contributor toeconomic growth and poverty alleviationin sub-Saharan Africa.

US$600m in taxes was paid to localgovernments throughout sub-SaharanAfrica by CDC’s 100 portfolio companieswhich reported tax data in 2008,representing about 40% of CDC’s totalportfolio in the region.29 CDC’s portfoliocompanies are accordingly majorcontributors to increased governmentrevenues in sub-Saharan Africa.

By the end of 2008, CDC was investedwith 18 different fund managers through42 different funds in sub-Saharan Africa.Seven of these fund managers were newlyformed investment groups. CDC’s supportof first-time fund managers in sub-Saharan Africa represents a majorinvestment in local capacity building,which contributes to strengthen the localcapital markets. 15 of these fundmanagers have local offices in 13 differentcountries, including Madagascar, Côted’Ivoire, Senegal and Zambia in additionto the traditional African investment hubs Lagos, Johannesburg and Nairobi.

CDC’s portfolio companies span acrossthe African continent, from Togo toMadagascar, Djibouti to Cameroun, and Malawi to Gambia. The single largestinvestment destination for CDC’s capital

in sub-Saharan Africa is Nigeria, which,with £111m invested in 44 differentcompanies, represents 12% of CDC’stotal investment portfolio. South Africaand Tanzania follow as close second andthird investment markets in sub-SaharanAfrica for CDC, with £90m invested in 38different companies and £85m invested in 12 portfolio companies, respectively.There are 39 companies in Kenya whichare supported by CDC’s capital. 214 ofCDC’s 261 portfolio companies in sub-Saharan Africa are located in low-incomecountries, representing 82% of CDC’sportfolio value in the region.

Sub-Saharan Africa continued

2004 2005

96 73200650

2008

160

2007

200

New investments (£m)

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

11

2218

15

11021

30

16

14

3

1

Portfolio companies by sector (number of companies)

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

40

3353

28

11446

45

93

4

2

8

Investment value by sector (£m)

“Don’t look at Africa as a homogenous continent! Our region is made up of 53 very different countries,some difficult, some easier.Capacity and infrastructurediffer vastly and gaps shouldbe bridged with broadprogrammes of social andcorporate entrepreneurship.”

Graça Machel, former Minister ofEducation and first lady of Mozambique,speaking at a conference organised by IBLF and GAVI in London on 30 March 2008.



CDC’s portfolio in sub-Saharan Africaincludes companies of all different sizes,which are active in all sectors of theeconomy. Financial services represent thesingle largest share of CDC’s investmentportfolio, with investments in 110companies and a total investment value of£114m. 16 energy and utility companiesrepresent the second largest sectorinvestment for CDC in sub-SaharanAfrica, with a combined portfolio value of£93m. In terms of number of companiessupported by CDC’s capital, the secondlargest sector after financial services isindustrials and materials (excludingmining), with £45m invested in 30companies, followed by information and communication technology (ICT), with £33m invested in 22 companies, and consumer goods and services, with £46m invested in 21 companies.

A number of CDC’s fund managers insub-Saharan Africa focus on SME andmicrofinance investments. Aureospioneered private equity investments inEast, West and Southern Africa throughthree different regional funds. GroFin andBusiness Partners focus on providingfinance to help even smaller businessesexpand their activities.

In accordance with CDC’s new investment policy for 2009 to 2013, CDCwill invest at least 50% of its capital insub-Saharan Africa.

As one of the leading investors to supportprivate sector development in sub-Saharan Africa over the last 60 years,CDC has acted as a catalyst for privatesector development in a number of ways.

• CDC was an early investor in Celtel, the pan-African telecommunicationscompany that pioneered the use ofmobile telephones across Africa. CDC,through its fund manager ACA, is alsoan investor in MTN Nigeria, anothermajor force behind the African mobilephone revolution which started its rapidexpansion across the sub-continent byproviding access to mobile telephonyservices for 20 million new subscribersin Nigeria. MTN and Celtel are nowexpanding across markets that stillhave very low mobile phonepenetration, such as the DRC andCameroun.

• CDC has invested in numerousmicrofinance institutions, helping thepoorest of the poor gain access tofinancial services which allow them tofinance small business ventures andthus help themselves and their familiesout of poverty. CDC’s fund managershave also invested in financialinstitutions covering the entire spectrumfrom microfinance to large businessbanking services. Equity Bank ofKenya, now one of the largest banks inEast Africa, which is rapidly expandingits reach into Uganda, Rwanda andSouthern Sudan, is an example of sucha successful African bank. Through itsinvestment in GroFin, the first pan-African fund to provide access tofinance for small companies needingup to US$1m of risk capital, CDCsupports a large number of smallbusinesses that otherwise would havehad great difficulties accessing financethrough traditional banking channels in sub-Saharan Africa.

• Infrastructure investments, particularlyin power and telecommunicationinstallations, continue to be a highpriority for CDC. In 2007, CDC’s fundmanager Actis established a newUS$750m infrastructure fund foremerging markets, which includesseveral of CDC’s sizeable energy assetsin sub-Saharan Africa. CDC’s portfoliocompanies include some of the majorelectricity generation and distributioncompanies in sub-Saharan Africa, suchas Songas in Tanzania, Umeme inUganda, Azito in Côte d’Ivoire, andTsavo in Kenya.

Companies from other emerging marketsare moving operations and investmentsinto sub-Saharan Africa. The Indiangovernment has publicly stated that itexpects trade between Africa and India todouble by 2014. Some of CDC’s portfoliocompanies in India are spearheading thisexciting trend. Two successful miningcompanies from CDC’s Indian portfolioare currently expanding into Ethiopia andTanzania, as well as into the DRC. Ascompanies from other emerging marketsexpand into sub-Saharan Africa, CDC canhelp them ensure that their operationscontinue to adhere to international goodpractice standards to protect theenvironment, safeguard labour andworking conditions, and ensure soundhealth and safety standards.

CDC’s 18 fund managers have officesin 13 countries in sub-Saharan Africa




CDC’s 2008 evaluation results for investments in sub-Saharan Africa


5 funds

2 fund managers

In 2008, CDC conducted evaluations of five of its fund investments in sub-Saharan Africa. Two of these evaluationswere final, conducted at the end of thefunds’ duration. Three evaluations wereconducted at midpoint, half way throughthe funds’ investment duration. Theevaluation work included reviews of the54 companies that these funds hadinvested in as well as the practices of thetwo fund managers that managed thesefive funds from offices across sub-SaharanAfrica, including staff in Lagos, Nairobi,Johannesburg and Lusaka.

The results from the five evaluationsconducted in sub-Saharan Africa werepromising. Four of the funds were rated as overall successful in terms ofdevelopment outcome, and only onefund was rated as below expectations.Two funds received the highest rating,excellent, on economic performance.Two funds received the top rating in termsof their portfolio companies’ contributionsto private sector development. One ofthese funds was an important financialbacker of the Nigerian mobile phonerevolution. The other fund that receivedthe excellent rating on private sector

development focused on SMEinvestments in a range of differentsectors, with initially small companiessuccessfully expanding across EastAfrica, bringing the benefits of increasedaccess to financial services, retail, safemalaria drugs and high quality locallyproduced steel from recycled scrap metalto people in Kenya, Tanzania, Rwanda,Uganda and, for one of the microfinanceinvestments, to the poor in SouthernSudan. Both of the fund managerscovered by the evaluations pioneeredprivate equity investment in sub-SaharanAfrica. Both have local offices run by local staff. All of the funds evaluated hadpositive net IRR, and only one fund wasrated as unsatisfactory on financialperformance.

Performance from the environmental,social and governance (ESG)perspective was strong. All fundsevaluated achieved a satisfactory orsuccessful performance rating. 33% ofthe portfolio companies covered by theevaluations had improvementsundertaken or underway in terms of howthey manage(d) environmental matters.Improvements included, for example, new technologies to reduce pollution,improved waste management, andmeasures to reduce electricityconsumption. 46% of the companiescovered by the evaluations had measuresundertaken or underway to improvelabour and working conditions, health and safety standards, and/or had madecommunity development donations fromcorporate profits. Examples included apartnership between an East African retailchain and a breast cancer awarenessNGO, a range of new measures toimprove health and safety standards


Largest CDC investments in Africa5

Songas, Tanzania33

Energy & utilities£70m

DFCU, Uganda34

Diversified financial services£37m

Empower, South Africa35

Energy & utilities£32m

Diamond Bank, Nigeria36

Financials, commercial banks £32m

“Given the concreteopportunities that existbetween our two regions,India-Africa trade could easilydouble to US$70bn over thenext five years.”

Pranab Mulcherjee, former External AffairsMinister, currently Home Minister of India,as quoted in African Business, May 2009.

Excellent Successful Satisfactory Below Unsatisfactory Poor % satisfactoryexpectations or better

Development outcome 0 4 0 1 0 0 80%





CDC effectiveness 0 2 3 0 0 0 100%

Added value 0 0 5 0 0 0 100%

Catalytic 2 2 0 1 0 0 80%

Summary of CDC’s Evaluation Ratings in 2008 for 5 sub-Saharan Africa funds


across different industries, and theintroduction of corporate HIV/AIDSpolicies and programs for workers and their families in multiple portfoliocompanies. 43% of the portfoliocompanies covered by the evaluationshad seen improvements in corporategovernance and/or business integritystandards during the funds’ investmentperiod.

35% of all companies covered by theevaluations had insufficient environmentalstandards at the time of the fundmanagers’ investment, or hadexperienced some type of environmentalissues during the funds’ investmentperiod. From the social perspective, thiswas the case for 49% of all portfoliocompanies. These instances mostcommonly involved inadequate health and safety standards, but also includede.g., instances of compulsory and non-confidential HIV tests of workers andbelow-industry standard wages at thetime of investment. 47% of all portfoliocompanies included in the evaluationsneeded improvements from the corporategovernance perspective at the time ofinvestment. CDC is satisfied that the fundmanagers and their portfolio companieshave dealt with these issues in asatisfactory manner, or are in the process of doing so.

Financial Performance

3 funds above investment target in termsof net IRR, 1 within range, 1 below.

Economic Performance37

83% of portfolio companies showedemployment growth with 8,600 new jobs created.

Only 11% of portfolio companiesdecreased their number of workers, with 360 jobs lost.

85% of the portfolio companiesexperienced growth in turnover. Only 13% saw a decrease in turnover.

70% of portfolio companiesdemonstrated growth in profitability as measured by EBITDA. Only 26%reported a decrease in profits by thesame measure.

ESG Performance

One fund manager, which manages four of the funds evaluated, was ratedhighly in terms of its ESG managementsystems. The ESG management systemof the other fund manager was rated assatisfactory.

For the 45 portfolio companies thatreceived a rating of their ESGmanagement systems by its fundmanagers and CDC:

> 51% were rated as high

> 42% were rated as satisfactory

> 7% were rated as poor

Private Sector Development

US$148m in third party capital wasraised by the 5 funds evaluated. CDCcontributed a total of US$45m to thesefunds, 23% of the total capital.

16% of the third party capital invested in these 5 funds was from commercialinvestors, i.e., not from developmentfinance institutions (DFIs).

All fund managers successfully raisedlarger successor funds.

Quality of ESG management systems of portfolio companies fromevaluations (%)

1

23 1 High 51%

2 Satisfactory 42%3 Poor 7%

Key statistics from 2008 evaluations in sub-Saharan Africa


Compagnie Hévéicole de Cavally, Côte d’IvoireJob creation throughsustainable forestry in a post-conflict zone

A combination of the development ofcocoa production for export, close ties toFrance, and significant foreign investmentmade Côte d’Ivoire one of the mostprosperous states in West Africa duringthe 1960s and 1970s. Since then, steepcommodity price fluctuations and longperiods of political turmoil and civil warhave significantly destabilised theeconomy and reduced foreign investment.Today, 37% of the 20 million populationlives below the poverty line.

In 1996, through its investment inCompagnie Hévéicole de Cavally, CDC acquired 2,000 hectares of rubberplantation located in the Moyen Cavallyregion of western Côte d’Ivoire. At thetime, CDC was still a direct investor.CDC’s investment enabled CompagnieHévéicole de Cavally to build a modernrubber processing factory. CDC was oneof few foreign investors that remainedactive in Côte d’Ivoire following the coupd’états in 1999 and 2002, and thesubsequent civil war. CDC’s investmenthas been managed by Actis since 2004.

In 2006, Compagnie Hévéicole de Cavallyproduced 14,000 tonnes of rubber forexport to customers such as Michelin and Goodyear, generating a total of €20m in export revenues, which providemuch needed hard currency for theIvorian economy.

Compagnie Hévéicole de Cavally is theonly significant source of jobs and incomein a remote rural Ivorian location within a country suffering from high levels ofunemployment. The company employs1,020 permanent staff and over 300contractors. These jobs have been

important for stabilising the surroundingcommunities and aiding rehabilitation ofex-combatants from the civil war period.

Compagnie Hévéicole de Cavallyoperates a smallholder programme. This scheme provides local people withplanting material, training and finance to establish their own plantations fromwhich “cuplump” (raw rubber) is bought at market prices for processing at thecompany’s factory. This programmeboosts economic activity and raises skill levels in the local communities. As a result, there are about 600smallholders involved in rubberproduction in the Moyen Cavally region.Their production contributes aroundUS$7m to the local economy.

During CDC’s ownership, CompagnieHévéicole de Cavally built two primaryschools for the local community, paid the salaries of school staff, and providedan adult literacy programme for villagers.

Côte d’Ivoire, like other sub-Saharannations, suffers from high HIV infectionrates, with over 4% of the populationreported to be HIV positive. CompagnieHévéicole de Cavally supports communityHIV/AIDS awareness initiatives, and hasassisted in the distribution of freecondoms to the local community.

With the help of CDC’s fund managerActis, management at CompagnieHévéicole de Cavally has been able toaccess appropriate agricultural, technicaland commercial advice and assistance,developing an economically viable andsustainable business.

Despite the long periods of instabilityexperienced in Côte d’Ivoire throughoutCDC’s 11 year investment period,Compagnie Hévéicole de Cavallydeveloped one of the most productiverubber plantations in West Africaproducing a premium export product. The plantation was sold in 2007 to a well-established tropical plantation business.

Key data1

Investment:2 US$29mInvestment period: 1996-2007Investment sold: 2007Sector: ForestryFund manager: Actis, Africa AgribusinessEmployment: 1,020Employment growth:3 40%Turnover: €19mTurnover growth:3 80%EBITDA: €10mEBITDA growth:3 164%Taxes paid: €0.75m

Footnotes for key data1 The data is from 2006, except for when stated otherwise.2 US$29m invested by Actis. CDC’s investment in the Africa

Agribusiness Fund is US$93m; total fund size is US$93m.3 2005-2006.



Golden Lay Limited, ZambiaEmployment opportunitiesand livelihood for small-scale traders with focus on food safety andemployee health

Zambia is one the poorest countries insub-Saharan Africa. It has a population of12 million, more than two thirds of whomlive below the poverty line. Despite recentefforts to diversify the economy, Zambiaremains heavily dependent on copper,which accounts for 80% of exportrevenues. In rural areas particularly, thereare few employment opportunities outsideof mining. Recent falls in internationalcopper prices have resulted in increasinglevels of economic hardship. Manycopper mines have reduced productionrates or ceased their operations, resultingin heavy job losses in the country. Zambiaalso suffers from one of the highestHIV/AIDS prevalence rates in sub-SaharanAfrica, with 15% of the adult populationinfected. Many households lack essentialfood and access to medicine because of extreme poverty.

Golden Lay is the largest table eggproducer in Zambia’s copper belt,accounting for 15% of the total Zambianmarket. Golden Lay sells eggs from itsfarm through hundreds of small-scaletraders who buy eggs for onward sale at a small mark-up and thereby earn their livelihood.

Since the investment in Golden Lay byCDC’s fund manager Aureos, productioncapacity has increased through theinstallation of new laying houses. Newstaff houses have also been built,providing a third of all employees and their families with good quality on-sitehousing. Sanitation and the supply ofrunning water at staff houses has beenimproved, with the replacement of water

pumps. There are plans to electrify the workers’ compound to further improve living conditions.

In developed markets, spent hens are either processed into pet food,incinerated, or buried in dump sites at the end of their egg laying life. AlthoughZambia has no specific regulationsgoverning the disposal of chicken waste,Golden Lay has established its own highquality system.

At Golden Lay, old but healthy hens are sold to the local community as asource of meat protein at low prices.Smallholders buy the spent hens foronward sale in much the same way theybuy and sell eggs. Otherwise, meat inZambia is too costly for most households.

Dead birds at Golden Lay are disposed of in mortality pits. These pits are locatedaway from the water pumps and layhouses, reducing the risk ofcontamination to water supplies and the exposure of livestock to disease.

With assistance from Aureos, grantfunding from the European InvestmentBank (EIB) was secured for thedevelopment of an HIV/AIDS awarenessand management programme at GoldenLay. Through this programme, staff andtheir immediate families are educatedabout the disease, provided with accessto voluntary testing, anti-retroviral drugsand vital nutritional supplements. Thisfunding has also delivered improvementsto a local clinic that caters to the broadercommunity. The clinic is financiallysupported by Golden Lay and otherfarmers in the area. It is estimated that theHIV/AIDS programme could reduceGolden Lay healthcare costs by as muchas 60% through HIV prevention andretention of infected staff. The companyplans to roll out the programme to the wider community of around 18,000 people.

Key data1

Investment:2 US$5mInvestment period: 2006-presentSector: AgribusinessFund manager: AureosEmployment: 120Employment growth:3 18Turnover: US$7.2mTurnover growth:3 US$1.5mEBITDA: US$1.2mEBITDA growth:3 –US$0.3m

Footnotes for key data1 From year-end 2008, except for when stated otherwise.2 US$5m invested by Aureos, CDC investment in Aureos

Southern Africa Fund is $13m; total fund size is US$50m.3 2007-2008.


Asia

Since experiencing its home-grown financial crisis in 1998, most of Asia hasenjoyed ten years of rapid economic growth and declining poverty, driven by an expanding private sector. The currentglobal recession, however, is taking its toll.


348 portfolio companies in28 countries


India followed by Chinadominates CDC’s investmentportfolio in Asia


US$1.2bn in local taxespaid by the 256 portfoliocompanies which reporteddata in 200839

29 of CDC’s fund managersinvest in Asia

CDC’s fund managers have investments in 28 countries in Asia


15–25 investments

6–15 investments

1–5 investments

PAKISTAN

PAPUA NEW GUINEA

PHILIPPINES

RUSSIA

SOLOMON ISLANDS

SRI LANKA

TAJIKISTAN

THAILAND

TONGA

TURKEY

UKRAINE

VANUATU

VIETNAM

YEMEN

AFGHANISTAN

ARMENIA

AZERBAIJAN

BANGLADESH

BELARUS

CAMBODIA

CHINA

FIJI

INDIA

INDONESIA

KAZAKHSTAN

KYRGYZSTAN

LAOS

MALAYSIA

Chapter 6 – Asia 55


Since experiencing its home-grownfinancial crisis in 1998, most of Asia hasenjoyed ten years of rapid economicgrowth and declining poverty, driven by anexpanding private sector. South Asia as aregion grew by an impressive 8% in 2007.Despite the global financial crisis, growthrates for 2008 were close to 6%.40

The economic expansion of the twodominating economies in Asia, China andIndia, were the most remarkable. Chinagrew by 13% in 2007 and continued itseconomic expansion fuelled by domesticdemand in 2008.41 The Indian economyexpanded by 9% in 2007 and, like China,was less affected by the global recessionin 2008 than the European and U.S.economies.41 The economic growth ratesachieved by other countries in South andSouth East Asia have also been significantand the region is overall a developmentsuccess story. With the global recessionincreasing its tolls on emerging marketeconomies, however, 2009 is expected tobe a tough year for Asia as for the rest ofthe world, with lower rates of growth andthe prospect of wide scale reductions in employment.

Despite impressive economic growth, thebattle against poverty in Asia is far fromwon. To illustrate the scale of the task, inIndia today, some 455 million people livebelow the poverty line, surviving on US$1 per day or less.15 80% of India’spopulation survives on less than US$2 per day. The poor in India make up 40%of the total number of poor people in the world.42 According to the IFC, 31 of India’s 35 states and territories haveincomes comparable to those of the

poorest countries in sub-Saharan Africa.Overall, more than 40% of the people inSouth Asia still survive on about US$1 per day.43 Poverty rates in the region areprojected to decrease, thanks to the rapidrate of economic expansion. South Asia is expected to achieve the MillenniumDevelopment Goal of halving theproportion of poor people as a share of the total population by 2015. Thisachievement, however, is still expected toleave 25% of the population of South Asiadesperately poor five years hence.

China, along with the rest of East Asia, isfaring much better, with current povertyrates of 30% of the population projectedto decrease below 5% by 2015.43 Still,16% of all the poor in the world currentlyreside in the vast Chinese territories. With the global recession, future growthrates are more unpredictable. Ruralregions of China are lagging behind. The bulk of China’s estimated 200 millionpoor people are located in rural WesternChina, far away from the booming growth cities of Beijing, Shanghai andHong Kong and the nearby factory andmanufacturing regions.

Around 45% of the people in South Asiaare not employed in the formal labourmarkets. Only about 30% of all womenare employed. 75% of employment inSouth Asia is considered to be vulnerable,in terms of workers that are less likely tohave access to social security, incomeprotection and effective coverage underlabour legislation and therefore more likelyto lack critical elements of decent workaccording to the International LabourOrganisation (ILO).30

There are still high levels of malnutrition in India, Pakistan and Bangladesh. Thosemost likely to suffer from its debilitatingeffects are usually women and children.By IFC estimates, some 30% of India’shouseholds still lack access to electricity,and 20% have no sanitation facilities.9Access to all types of basic infrastructureand services, from clean water tohealthcare, transportation andtelecommunication is in short supply in rural India, as well as in rural regionsthroughout South Asia. The region scoressecond lowest after sub-Saharan Africa in global rankings which relate to the easeof doing business.31

The World Bank has argued that if povertyis to be reduced as projected in SouthAsia, growth rates need to rise to 8 to10% and stay there for a decade. Earlieroptimistic projections for povertyreduction in the region may have to be altered in light of the current globalrecession, with growth rates for 2009expected to be far below what wasexpected one year ago. Furthermore, both urban and rural infrastructure deficitswill need to be addressed and a morebusiness friendly environment has to emerge.

Largest investment destinations bynumber of portfolio companies

China India Indonesia Malaysia Sri Lanka

93

144

18 107

Largest investment destinations by value (£m)

China India Indonesia Malaysia Sri Lanka

101166

21 1017

CDC’s investment universe in Asia

Low income

Middle income


CDC’s investments in Asia

CDC has been an active investor in Asiafor a long time, pioneering investments in poor or difficult countries and backingpromising businesses throughout theregion. By the end of 2008, CDC hadcommitted a total of US$2.2bn to 59different private equity funds managed by29 fund managers in Asia. By the end of2008, CDC had 348 portfolio companiesin Asia, with a total portfolio value of£363m. CDC’s investments in Asiaaccount for almost 40% of CDC’s total portfolio value.

47% of CDC’s investments in Asia are inIndia or other low income countries.1 Indiais the single largest investment destinationfor CDC’s capital, with £166m invested in144 companies, accounting for 18% ofCDC’s total investment portfolio. China isthe second largest investment destinationin Asia for CDC, with £101m invested in93 companies. CDC’s investment policyfor the 2009-2013 investment periodfocuses CDC’s future investmentsexclusively on the low-income countries in Asia. China, having made remarkableprogress in raising living standards andhaving accumulated substantial reservesof capital, will no longer figure as aninvestment destination for CDC from2009. India will continue to be a majorinvestment focus for CDC, as will thepoorer countries in Asia includingAfghanistan, Bangladesh, Cambodia,Laos, Nepal and Vietnam.

About 550,000 people are employed inCDC’s 281 portfolio companies in Asiawhich reported employment numbers toCDC in 2008, representing 80% of CDC’stotal portfolio companies in the region.38

For each person employed, thelivelihoods of an estimated additional four persons are assured.22 Through itsinvestments in commercially strongcompanies, CDC is accordinglycontributing to economic growth andpoverty alleviation in Asia.

US$1.2bn in taxes was paid to localgovernments throughout Asia by CDC’s256 portfolio companies which reportedtax data to CDC in 2008, representingabout 74% of CDC’s total portfoliocompanies in the region.39 CDC’s portfoliocompanies are accordingly majorcontributors to increased governmentrevenues in Asia, providing importantfunding for primary education, healthcareand other basic services.

CDC’s portfolio in Asia includescompanies of all different sizes, which are active in all sectors of the economy.Consumer goods and services representthe single largest share of CDC’sinvestment portfolio in Asia, withinvestments in 84 companies and a totalinvestment value of £79m. Industry andmaterials (excluding mining) is the secondlargest sector for CDC’s investmentportfolio in Asia, with £75m invested in 81 companies. Healthcare, includinghospitals and pharmaceuticals, is the third

largest investment sector for CDC in Asia,with 20 portfolio companies representingan investment value of £47m. CDC also has important investments ininfrastructure in Asia, with £38m investedin 28 different infrastructure companies.

Given the relative sophistication of theprivate equity industry in India, China andSouth East Asia, CDC’s focus has been to find a balance between proven fundmanagers with track records of investingsuccessfully in growing companies and first time fund managers, whichcontribute to new investment capacities in the economies where they operate. 18 of CDC’s 29 fund managers in Asia arefirst-time fund managers. This representsa major investment by CDC in buildinginvestment capacity in the region, thereby contributing to strengthen local capital markets.

Asia continued

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

28

268

13

3184

81

19

31

20

7

Investment value by sector (£m)

Energy & utilities

ICT*

Mining

Industry &materials

Agribusiness


Financialservices

Microfinance

Healthcare

Infrastructure

Cleanertechnologies

38

146

18

2979

75

29

19

47

9

Portfolio companies by sector (number of companies)



Over the last 60 years, CDC has been aninnovative development investor in Asia.Highlights include:

• Extensive investments in theagricultural sector in South East Asiafor over half a century. CDC providedfinance for setting up the Federal LandDevelopment Authority (FELDA) inMalaysia in the 1950s. FELDA wasresponsible for promoting rubber andrice plantations in widely dispersedparts of Malaysia. CDC itselfsubsequently established palm oilplantations in Malaysia, Indonesia andPapua New Guinea. CDC’s last palm oilcompany was sold to Cargill in 2005.Since CDC adopted its fund-of-fundsinvestment model, new investments in agribusinesses have been made by CDC’s fund managers. CDC hasrecently made an investment ofUS$10m in Rabo Bank’s AgribusinessFund to be used for new investments in the agricultural sector in India overthe coming years.

• Playing an early mover role indeveloping the Asian private equityindustry, and thus strengthening thelocal capital markets, including inIndia and China. CDC moved intoprivate equity in India in the mid-1990sand launched its first private equityfund, the South Asian Regional Fund, in 1997. The first CDC sponsoredprivate equity fund in China was set up in 2000. These funds provided a platform for subsequent fundsestablished by CDC’s spin-out fundmanagers, Actis and Aureos, and gaveconfidence in the private equity modelto a host of other firms. CDC is also aninvestor in JS Private Equity, a pioneerfund in Pakistan.

• Promoting microfinance and SMEinvestments. CDC invested inGrameenphone in 1997. More recentlyCDC committed capital to Lok Capital,which provides equity capital andcapacity building support to Indianmicrofinance institutions. Lok Capitalfacilitates the delivery of affordablefinancial services in India, primarily to low-income households, in acommercially viable and sustainablemanner. CDC is a major investor inAureos’s SME funds in India, China and South East Asia as well as in Avigo’s SME fund in India.

“With the authoritiesannouncing plans tointroduce medical insuranceto 90 per cent of the ruralcommunity by 2011, a hugeinfrastructure spendingprogramme and a massiveeasing of monetary andfinancial conditions, the only debate in my mind is exactly when China willrestore its growth rate backabove 8 per cent.”

Jim O’Neill, Goldman Sachs, March 2009.

CDC’s 29 fund managers that investin Asia have offices in 11 countries



2004 200529 52

2006

121

2008

230

2007

82



Asia continued

CDC’s largest investments in Asia5

Paras Pharmaceuticals,India44

Healthcare, pharmaceuticals£28m

Bharti Infratel Indus, India45

Infrastructure, telecomsinfrastructure£16m

Teknicast, Malaysia46

Energy & utilities, energyequipment & services£11m

National Stock Exchange of India, India47

Financials, capital markets£10m

CDC’s evaluation result for Asian investments


6 funds

5 fund managers

In 2008, CDC conducted evaluations ofsix of its fund investments in Asia. One ofthese evaluations was final, conducted atthe end of the fund’s duration. Five wereconducted at mid-point, halfway throughthe investment duration. The evaluationwork included reviews of the 65companies that these funds had invested.It also assessed the practices of the fivedifferent fund managers that managedthese six funds from offices across Asia,including staff in several offices in Indiaand China, as well as offices in Pakistanand the Pacific islands.

The results from the six evaluationsconducted in Asia were promising. Four ofthe funds were rated as overall successfulin terms of development outcome. Two were rated as satisfactory. In therespective sub-categories, most fundswere rated as either successful orsatisfactory. One fund received thehighest rating, excellent, on financialperformance, with a net IRR above 50% following a very successful exit. The same fund received the highest ratingfor private sector development, whichincluded successful contributions to growbusinesses across a multitude of differentsectors throughout India through the fund manager’s local offices with Indian

investment professionals. Only one fundwas rated as below expectations on anyparameter, which was for financialperformance.

Performance from the environmental,social and governance (ESG) perspectiveswas strong, with all funds evaluatedachieving a satisfactory or higher rating on ESG performance. One of the fundsreceived the highest rating, excellent, for the multiple improvements realised orunderway in how its portfolio companiesmanaged ESG matters. 34% of portfoliocompanies covered by the evaluationshad improvements undertaken orunderway in terms of how they manage(d)environmental matters. Suchimprovements included, for example,reduced pollution from coal mining inIndia; improved pollution, waste and watermanagement for a leading Indian ready-mix concrete company; and measures toimprove energy efficiency and wastedisposal from a major cement plant inIndia. 34% of the companies covered bythe evaluations had measures undertakenor underway to improve labour andworking conditions, health and safetystandards, and/or had made communitydevelopment donations from corporateprofits. Examples included substantialinvestments in improved health and safetyproduction standards in a number of majorfactories, pharmaceutical companies andmining operations in India; enforcement of minimum wage standards for a largeservice company; improved health andsafety standards for a food producer inChina; and community developmentprogrammes associated with a plantationbusiness in Papua New Guinea. 75% of the portfolio companies covered by the evaluations had seen improvements

Excellent Successful Satisfactory Below Unsatisfactory Poor % satisfactoryexpectations or better

Development outcome 0 4 2 0 0 0 100%





CDC effectiveness 0 5 1 0 0 0 100%

Added value 0 5 1 0 0 0 100%

Catalytic 2 1 1 2 0 0 67%

Summary of CDC’s Evaluation Ratings in 2008 for 6 Asian funds


Financial Performance:

1 fund above investment target in termsof net IRR, 5 funds below.

Economic Performance:48

66% of portfolio companies showedgrowth with 21,700 new jobs created.

Only 5% of portfolio companiesdecreased their number of workers, with 390 jobs lost.

80% of portfolio companies experiencedgrowth in turnover.

Only 2% saw a decrease in turnover.

48% of portfolio companiesdemonstrated growth in profitability as measured by EBITDA. 32% reporteda decrease in profits by the samemeasure.

in corporate governance and/or businessintegrity standards during the funds’investment period.

27% of all companies covered by theevaluations had insufficient environmentalstandards during the time of the fundmanagers’ investment, or hadexperienced some type of environmentalissues during the funds’ investmentperiod. From the social perspective, this was the case for 31% of all portfoliocompanies. These instances mostcommonly involved inadequate health and safety standards, but also included,for example, below-industry standardwages at the time of investment. 33% ofall portfolio companies covered by theevaluations needed improvements fromthe corporate governance perspective atthe time of investment. CDC is satisfiedthat the fund managers and their portfoliocompanies have dealt with these issues in a satisfactory manner, or are in theprocess of doing so.

“In the next five years theroads will get fixed, the portssorted out, there will be 200million mobile subscribersand a huge increase inproductivity.”

Dalip Pathak of Warburg Pincus talking about India in Business Week, 20 June, 2005.

ESG Performance

Four fund managers, one of whommanages two of the funds which wereevaluated, were rated highly in terms of their ESG management systems. One fund manager received asatisfactory rating.

For the 43 portfolio companies that received a rating of their ESGmanagement systems by their fundmanagers and CDC:

> 88% were rated as high

> 12% were rated as satisfactory

Private Sector Development

US$1.5bn in third party capital wasraised by the 6 funds evaluated. CDCcontributed a total of US$314m to thesefunds, 17% of the total capital.

82% of the third party capital invested in these 6 funds were from commercialinvestors, i.e., not from developmentfinance institutions (DFIs).

All of the fund managers that werecovered by the 6 evaluations havesuccessfully raised larger successorfunds, or are in the process of doing so.One of the fund managers did not raise a successor fund for the specificgeography covered by one of the funds evaluated.

Quality of ESG management systems of portfolio companies fromevaluations (%)

1

2 1 High 88%2 Satisfactory 12%

Key statistics from 2008 evaluations in Asia


Asia continued

Sathapana, CambodiaAccess to finance andbusiness start-up adviceempowers poor women

Cambodia has a population of 14 million, 36% of whom live below the poverty line.The country has emerged from decadesof dictatorial rule and civil conflict and halfof the government budget comes fromforeign aid. The economy is dependent onagribusiness, tourism and manufacturing,with rice, fish, timber and rubber being themain exports. Recent discoveries of oiland gas offshore are expected to drivefuture economic growth.

Sathapana, formerly known asCambodian Entrepreneur Building Ltd, isa microfinance organisation in Cambodia.Since starting operations in 1996,Sathapana has provided 315,000 loanswith a total value of US$126m to over108,000 households. With each loanbenefiting several family members,Sathapana’s lending has had a positiveimpact for an estimated 700,000 people.Sathapana has 33 branches, covering 14 provincial areas and reaching 3,000rural villages. It employs 653 full time staff members, of whom 117 are women. All staff members are paid above the local minimum wage, and have access to training and healthcare.

An affiliate of CDC’s fund managerShoreCap International, ShoreCapExchange invested in Sathapana in 2004 and has provided Sathapana withtechnical assistance to improve itsfinancial, audit and information systems.

Apart from the provision of finance,Sathapana is focused on actively helpingentrepreneurial poor people, especiallywomen, to develop micro-enterprises.Women run more than 60% of all micro-enterprises in Cambodia. Despite a strongentrepreneurial culture, women inCambodia face socio-cultural and politicaldiscrimination, and have limitedopportunities for employment.Approximately 70% of loans made bySathapana are to women. Higher incomefor women tends to result in betternutrition, welfare, and education for theirchildren and other dependents

Sathapana has employed a specialistenvironmental officer to strengthenenvironmental management. Measuresinclude encouraging environmentalawareness among staff, with an emphasison recycling, the use of energy efficientlight bulbs, and the safe disposal of hazardous materials.

Key data1

Investment:2 US$1.25mInvestment period: 2004-presentSector: MicrofinanceFund manager: ShoreCap ManagementEmployment: 653Employment growth: 366%Taxes paid: US$1mBorrowers: 37,160Borrower increase:3 28,670Gross loan portfolio: US$37mGross loan portfolio increase:3 US$33mTotal deposits: US$2mIncrease in deposits:3 US$2m% Women: 70%Loan portfolio at risk >30: 0.2%

Footnotes for key data1 From year-end 2008, except for when stated otherwise.2 US$1.25m invested by ShoreCap International, CDC’s

commitment to ShoreCap International is US$4m; total fundsize is US$28.5m.

3 2004-2008.


Key data1

Investment:2 US$35mInvestment period: 2007-presentSector: Mining Fund manager: ICICI, Dynamic India Fund VIITurnover: US$70mTurnover growth:3 US$21mEBITDA: US$19mEBITDA growth:3 US$8mTaxes paid: US$2m

Footnotes for key data1 The data is from 2008, except for when stated otherwise.2 US$35m invested by ICICI. CDC investment in ICICI’s

Dynamic India Fund VII is US$75m; total fund size isUS$810m.

3 2007-8.

Sainik Mining is a pioneer in the use ofsurface mining techniques in India. As thismethod reduces the need for drilling andblasting, the overall pollution levels in coalextraction are much lower as compared to conventional coal mining.

Sainik Mining’s sister company, which isowned by the same family, has pioneereda “washing” process to reduce the levelsof ash released when coal is burned. The washing plant at Sainik’s miningoperations in Chattisgarh is the largestsuch facility in the world.

Sainik has also developed technology to produce thermal power from the coal itrejects as too high in ash content from itswashing process. Sainik’s new technologyreduces greenhouse gases and otherpollutants that are released duringcombustion, transportation and disposalof high ash coal.

Sainik Mining provides jobs for hundredsof workers and contractors at its mines, all of which are remotely located. It provides high living standards for therelocated workers and their families, good housing, healthcare facilities and aschool for the children at the Chattisgarhmine. Health and safety standards arecarefully monitored.

Sainik Mining contributes to charity,financing the operation of a school in the slum district next to its New Delhiheadquarters as well as schools in theareas close to its mining operations,which are attended by 1,100 children.

Sainik Mining is now exploringopportunities to extend operations toother parts of the world including Africa.

Sainik Mining, IndiaExpanding coal mining in a responsible andsustainable manner

Access to energy is a major problem inIndia, with an estimated 400 million poorpeople lacking reliable power in theirhomes. Coal is India’s least expensivesource of primary energy and currentlymeets two-thirds of India’s energy needs.The coal industry is vital to India’scontinued economic growth and toincreasing access to energy for poor and rural areas.

Coal in India, however, has a very highash content which means that whenextracted and burned, higher levels ofgreenhouse gases and other pollutantsare released compared to when coal from other countries is burned. India iscurrently the world’s fourth largest emitterof greenhouse gases. The expansion of coal energy accordingly has to becarefully managed from an environmentalperspective.

Sainik Mining is one of the biggest coalmining contractors in India. The companywas founded in East India by two ex-servicemen and their families, and hasbecome one of India’s leading miningoperators. An investment from CDC’sfund manager ICICI has helped to finance Sainik’s expansion.



Latin America is relatively prosperouscompared to CDC’s other investmentgeographies, although it has some of thelargest income inequalities in the world.Most countries in the region, with theexception of Cuba and Haiti, are classifiedas middle-income economies.

Economic growth in the majority of thecountries in Latin America has beenstrong over the last years, with averagegrowth rates above 5% in 2006 and 2007for the region as a whole. The economicgrowth in Latin America over the last fiveyears has benefited from an expansion ininter-regional trade and exports outside ofthe region, primarily to the United States.Growth rates for some economies,including Brazil and Mexico, were lower,while some other countries performedbetter than the regional average. Notableexamples included Argentina andVenezuela, which grew by 9% and 8%,respectively, in 2007.54 While impressive,the high growth rate in Venezuela wasdriven by booming oil prices and growthin Argentina was fuelled by populistmeasures including artificial currencyinterventions to promote exports.

Several countries in Latin America havemade strides in improving their fiscal andmonetary policies over the last years,which has improved their economicgrowth prospects and made their marketsmore attractive for international investors.Brazil, Chile, Colombia, Peru and Mexicoare notable examples, while Argentina,Ecuador and Venezuela are laggingbehind in implementing economic

reforms. With its population of almost 200 million people, Brazil is the fifth mostpopulous country in the world and a hugedomestic market. Not surprisingly, Brazildominates the Latin American privateequity market, with well developed capital markets and a large, liquid stockexchange. In contrast, Mexico has arelatively small private equity marketcompared to the size of its economy,given a relatively difficult tax environment,an immature stock market and the lack of a strong investment culture. Colombiaand Peru are new private equity marketswith great potential, commercially as wellas developmentally given their fragmentedindustries with several companies of allsizes in need of modernisation. Chile, a relatively small and rich economy, is arguably not in need of publicdevelopment finance.

The global recession in 2008 adverselyaffected economic growth rates also inLatin America. On average, Latin Americagrew by more than 4% in 2008, whilethere were major differences betweenhow different countries in the region wereaffected by the downturn. The decline inoil prices in 2008 adversely affected themajor oil producers, including Mexico,Venezuela, Colombia and Ecuador. Othercountries suffered from the decliningdemand for imports from the UnitedStates, the major export market for theregion. Mexico is currently experiencing a major recession, partly due to its closeeconomic relationship with the UnitedStates which accounts for the bulk of Mexican exports. Argentina andVenezuela are also struggling afterprevious boom years. On the other hand,Peru, Colombia and Brazil seem to be

Other regions – Latin America

CDC’s fund managers have investments in 13 countries in Latin America

6–15 investments

1–5 investments

ARGENTINA

BRAZIL

COLOMBIA

COSTA RICA

ECUADOR

EL SALVADOR

GRENADA

GUATEMALA

HAITI

MEXICO

PANAMA

PERU

ST. LUCIA





US$400m in local taxespaid by the 22 portfoliocompanies which reporteddata in 200850

CDC’s largest investments in Latin America5

Regal Forest, El Salvador51

Consumer durables & apparel£18mNextel, Brazil52

Telecoms, wireless telecoms services£3mCapsa Diadem II, Argentina53

Energy & utilities, oil, gas &consumer fuel£3m

Chapter 6 – Other regions – Latin America 63

coping relatively well with the globalrecession, albeit with significantly lowerGDP growth than over previous years.

Foreign investment and private credit toLatin America have expanded widely overthe last five years, and were major factorsbehind the positive economic growthenjoyed by most countries in the regionover this period. The current financialcrisis has seen a drop in foreigninvestment for Latin America in 2008, as for most other economies.

Despite relatively high average incomelevels and strong economic growth inLatin America in recent years, poverty andinequality persist. Some of the countriesin the region, notably Brazil and Colombia,suffer from higher income inequalities thanmost other countries in the world, with a small minority of very wealthy families, a substantial middle class, and largenumbers of very poor people. More than20% of people in Latin America stillsubside on less than US$2 per day. Morethan 5% of Latin Americans survive onaround US$1 per day. About 45 millionpeople in the region fall below the povertyline, representing 3% of all poor people inthe world.15 Poverty rates are expected todecrease in Latin America over the nextfive years, but at a much slower pace thanwhat some of the countries in Asia,notably China, are expected to be able to achieve.

2004 2005

30

62006

61

2008

122007

14



Argentina Brazil Costa Rica El Salvador Mexico Peru

3 5

10 9

4 3

CDC’s investment universe in Latin America

Low income

Middle income

CDC’s 6 fund managers that invest in Latin America have offices in 6 countries



CDC’s investments in Latin America

Investments in Latin America investment,make up about 5% of CDC’s totalinvestment portfolio, with a total portfoliovalue of £49m invested in 45 differentcompanies. CDC is invested in tendifferent funds investing in Latin Americawhich are managed by six fund managers.All of these fund managers are locallybased and managed by local teams.CDC’s fund managers have offices inArgentina, Brazil, Costa Rica, Colombia,El Salvador and Mexico.

CDC is invested in 13 different countriesin Latin America, including the largesteconomies Brazil, Mexico and Argentina,but also some of the smaller, poorestcountries in the region like Guatemala, El Salvador and Haiti. Regal ForestHolding in El Salvador is CDC’s singlelargest investment in Latin America, withan investment value of £18m. Mexico is otherwise CDC’s largest investmentdestination in Latin America, with £8minvested in nine companies, followed by Brazil, with £7m invested in fivecompanies. In Costa Rica, CDC isinvested in ten small and medium sizeenterprises (SMEs).

CDC’s investments in Latin America spanmost industry sectors. Consumer goodsand services account for the bulk ofCDC’s investment value, with £22minvested in ten different companies.Energy and utilities, banking and financialservices, as well as information andcommunication technologies (ICT) arealso well represented among CDC’s Latin American investments, with investmentvalues above £5m per sector and 21 different portfolio companies across these three sectors.

Microfinance represents 5% of CDC’stotal investment value in Latin America,with £2m invested in three differentmicrofinance institutions. These providersof finance for the poor service thesegment of Latin America’s populationthat previously did not have access tonecessary capital to initiate or grow their small businesses and thus improvelivelihoods for themselves and theirfamilies.

About 20,000 people are employed inCDC’s 24 portfolio companies in LatinAmerica which reported employmentnumbers to CDC in 2008, representingslightly more than half of CDC’s totalportfolio companies in the region.49 Foreach person employed, the livelihoods of an estimated additional four personsare assured.

US$400m in taxes was paid to localgovernments throughout Latin America by CDC’s 22 portfolio companies whichreported tax data to CDC in 2008,representing slightly less than half ofCDC’s total portfolio in the region.50

Going forward, Latin America is not CDC’smost prioritised investment region asCDC’s investment policy for the 2009 to2013 period is to focus on the poorestcountries in the world, which are primarilylocated in sub-Saharan Africa and SouthAsia. Through its fund managers, CDC will primarily focus new fund investmentsin Latin America on the SME sector.



The five countries that make up NorthernAfrica: Morocco, Algeria, Tunisia, Libya,and Egypt, are relatively more prosperousthan the countries in sub-Saharan Africa.Economic growth has been positive overthe last years, with average growth ratesfor the region above 5% in 2006 andclose to 6% in 2007. Despite the globalrecession, North Africa kept up itsrelatively high economic growth rate in2008, averaging 6% across the regionwith Egypt and Tunisia performing even better.40

About 3% of the population in NorthAfrica and the Middle East live on aboutUS$1 per day.57 In terms of absolutenumbers, this represents less than 1% of all poor people in the world. Povertyrates in the region is projected todecrease further by 2015.15

Despite relatively high average incomelevels, North Africa and the Middle East continue to suffer from highunemployment, especially among youthand women.57 Only around 25% of theyoung and less than 30% of women areestimated to hold formal employment.These statistics are the lowest for anyregion in the world.58 Lack of access to finance, especially for poor people,women entrepreneurs and smallerbusinesses, also remain majorimpediments to sustained economicgrowth in North Africa.

CDC’s investments in North Africa

North Africa makes up about 6% ofCDC’s total investment portfolio, with aportfolio value of £50m invested in 27different companies. CDC is invested intwo funds managed by two different fundmanagers. Both fund managers are locallybased and both have offices in Tunisiaand Morocco. One of the fund managersalso has an office in Egypt; the other hasan office in Algeria. CDC also has someexposure to North Africa through pan-African funds.

CDC is invested in four of the fivecountries that make up North Africa, withthe exception of Libya. Algeria is by farthe largest investment destination for CDCin North Africa, through a large investmentof £37m in Algeria’s first private mobilephone operator, Orascom Telecom.Orascom is CDC’s second largestindividual company exposure anywhere in the world. Other investments by CDC-backed funds in Algeria amount to £4m in five different companies. Investments in three companies in Egypt representCDC’s second largest country exposure in North Africa, representing a totalinvestment value of £13m. CDCfurthermore has £8m invested in ninecompanies in Tunisia and £3m invested in seven companies in Morocco.

Other regions – North Africa

CDC’s fund managers have investments in 4 countries in North Africa

6–15 investments

1–5 investments

ALGERIA

EGYPT

MOROCCO

TUNISIA





US$10m in local taxes paid by the 12 portfoliocompanies which reporteddata in 200856

*

Chapter 6 – Other regions – North Africa 65

CDC’s investments in North Africa includemost industry sectors. CDC has otherassets in infrastructure and ICT, inaddition to the large Orascom investmentin mobile telephony infrastructure andwireless services, with £1m invested inthree other telephony infrastructurecompanies and £1m invested in one otherICT company. Healthcare representsCDC’s second largest sector exposure in North Africa, with £6m invested in threedifferent companies. The third largestsector for CDC’s investments in NorthAfrica is consumer goods and services,with £5m invested in four companies.Agribusiness comes fourth with £3minvested in four companies.

About 15,000 people are employed inCDC’s 19 portfolio companies in NorthAfrica which reported employmentnumbers to CDC in 2008. This represents70% of CDC’s total portfolio companies in the region.3 For each person employed,the livelihoods of an estimated additionalfour persons are assured.

US$10m in taxes were paid to localgovernments throughout North Africa by CDC’s 12 portfolio companies whichreported tax data in 2008, representing45% of CDC’s total portfolio in theregion.4

Going forward, CDC does not plan tocommit more capital solely to NorthAfrica, in view of its focus on the poorestcountries in the world which are mostlylocated in sub-Saharan Africa and SouthAsia. North African companies, though,are increasingly active investors in sub-Saharan Africa. Through CDC’sinvestments in pan-African funds, CDC is likely to continue to have anexposure to the region.

CDC’s investment universe in North Africa

Low income

Middle income

CDC’s 2 fund managers that invest inNorth Africa have offices in 4 countries



2004 2005

46

152006

25

2008

34

200714



Algeria Egypt Morocco Tunisia

6

3

79

CDC’s largest investments in North Africa5

Orascom Telecom, Algeria59

Telecoms, wireless telecoms services£37m

Amoun Pharmaceuticals,Egypt60

Healthcare, pharmaceuticals£7m

Sinai Marble, Egypt61

Materials, metals & mining£5m

Orascom Telecom, AlgeriaOrascom, Algeria 14 million new mobile phonesubscribers in a post-conflict country

Algeria has a population of 34 million,12% of whom are estimated to live belowthe poverty line. The country derivessignificant revenues from oil, which havestimulated economic growth anddevelopment over the last ten years.However, the development of a strongprivate sector and a diversified economyhave been hindered by a number offactors including political turmoil, lack ofcapital, administrative barriers, inadequateinfrastructure and limited access toinformation technology.

Orascom is a leading mobile phoneoperator in Algeria. It currently has 14 million mobile subscribers. Establishedin 2001, Orascom was the second mobilephone company in Algeria to be grantedan operating licence. At this time, therewere only 80,000 mobile subscribers inAlgeria, serviced by the sole state ownedoperator.

When CDC, through its fund managerActis, invested in Orascom in 2004, thenumber of mobile phone users in Algeriahad risen to over one million. Still, Algeriahad one of the lowest mobile phonepenetration rates in the world. Actis’investment was used to completeOrascom’s licence payment and to fundfurther expansion of the network andimproved infrastructure. By the end of2007, the number of mobile users inAlgeria had risen to 28 million.

Orascom Algeria is recognised in NorthAfrica as an environmentally and sociallyresponsible firm, and has been ISO9001(Quality Management Systems) andISO14001 (Environmental ManagementSystems) certified.

The investment from CDC, through Actis,has helped to attract further commercialcapital to what is widely considered to bea risky political environment.

Key data1

Investment:2 US$26mInvestment period: 2004-presentSector: TelecomsFund manager: Actis, Africa fund 1Employment: 3800Employment growth:3 1900Turnover: US$1.9bnTurnover growth:3 US$1.14bnTaxes paid: US$70

Footnotes for key data1 From year-end 2008, except for when otherwise stated.2 US$26m invested by Actis. CDC’s investment in Actis Africa

Fund I is US$308m; total fund size is US$308m. 3 2004-2008.

Aluminio de Panama, PanamaImproving wastewatertreatment in a high-riskindustry

Panama has been one of the fastestgrowing economies in Latin America inrecent years, averaging 9.5% growth ratessince 2006. Despite the high level ofeconomic growth, the country has one of the highest levels of income inequalityin the world, with over 30% of thepopulation of 3 million living in poverty.

Located outside of Panama City, Aluminio de Panama is the country’sleading aluminium manufacturer. It makesa range of aluminium products forarchitectural and structural use by theconstruction industry.

The process of manufacturing aluminiumcan generate significant and potentiallyenvironmentally harmful wastewater.Aluminio de Panama complies with

Other regions continued


Panamanian legislation for treatment ofwastewater. The company also activelycooperates with ANAM, the Panamanianenvironmental national authority to ensureits operations have minimal environmentalimpact. All effluent discharged byAluminio de Panama complies with bothlocal standards and International FinanceCorporation (IFC) guidelines.

Over the course of CDC’s fund managerAureos’ investment, Aluminio de Panamahas implemented a number ofimprovements to its facilities in order to reach compliance with internationalstandards. Using money invested by Aureos,the company improved its productionprocess, replacing hexavalent chromiumwith less environmentally harmful chemicals.

Aureos is currently helping Aluminio dePanama to obtain additional financing tofurther improve its wastewater treatmentprocess and achieve internationalcertification.

Improved wastewater treatment will allowfor the recycling of sludge, a solid residuegenerated in the production process.Currently, sludge is disposed of, but, ifproperly treated, other products can beobtained and reused from its recycling.

Key data1

Investment:2 US$5mInvestment period: 2006-presentSector: ManufacturingFund manager: AureosEmployment: 260Employment growth:3 60Turnover: US$15mTurnover growth:3 US$5m

Footnotes for key data1 From year-end 2008, except when otherwise stated.2 US$5m invested by Aureos. CDC’s investment in Aureos

Central America Fund is US$10m; total fund size is US$36m.3 2006-2008.

Businesses of all sizes, operating in all sectors, are important for sustainable development and economic growth. Manufacturing,financial services, technology, consumer goods and services,industry, retail and agribusiness all have vital contributions to make.Small and medium size enterprises (SMEs), start-ups and largerbusinesses are all important. CDC’s fund managers invest acrossthe full range of industry sectors and in businesses of all sizes and at all stages of development.

This report highlights the development value of multiple industrysectors and focuses particularly on CDC’s investments in energyand utilities, information and communication technologies (ICT), financial services, microfinance and funds for investment in SMEs.

Industry sector reviews and SME funds

Chapter

CDC’s fund managers have investments in 74 countries


15–25 investments

6–15 investments

1–5 investments

CDC’s fund managers invest in companiesacross all sectors of the economy which all have important contributions to make to private sector led growth and social and economic development.

This chapter provides in depth reviews ofCDC’s investments in a few selected sectorsand SME funds. Other sectors are brieflycovered. Further information on CDC’sinvestment portfolio and case studies areprovided on CDC’s website and will bepublished in future reports.

Chapter 7 – Industry sector reviews and SME funds


Industry sector reviews and SME funds69 Focus industry sector reviews:

69 Energy & utilities72 Information and communication

technologies (ICT)74 Financial services 76 Microfinance

78 Brief industry sector reviews:78 Mining78 Industry & materials79 Agribusiness 79 Consumer goods & services 80 Healthcare 80 Infrastructure 81 Cleaner technologies

82 SME funds

Chapter 7 – Industry sector reviews and SME funds 69


44 portfolio companiesin 17 countries



US$375m in taxes paid bythe 20 portfolio companieswhich reported data in 20084

Energy & utilities

The lack of safe and reliable electricity is one of the most importantobstacles for individuals and businesses in developing countries.

CDC’s fund managers have investments in energy & utilities in 17 countries

The provision of adequate powergeneration and distribution in poorcountries will be impossible without majorcapital investments. Jamal Saghir, directorfor energy, transport and water at theWorld Bank, has commented that Africaneeds investment in energy of US$31bn a year.63

Over one billion people in poor countriescurrently do not have access to safedrinking water. One of the United Nations’Millennium Development Goals is to halvethis number by 2015. More than twobillion people lack access to basicsanitation. Removal of solid waste is recognised by the World HealthOrganisation (WHO) as one of the mosturgent problems in developing countriesto prevent the spread of disease anddecrease child mortality. As for power,investments in utilities are a pressingpriority for developing countries.

CDC’s investments in energy and utilities

Investing in power has been a longstandingpriority for CDC. In 2002, CDCestablished Globeleq, a wholly ownedsubsidiary, by combining all of its powerinvestments. Four years later, Globeleqhad investments in 23 power companiesin 16 countries with a total of more than2,000 Megawatts in generation capacityand ownership of one national powerdistribution company in Uganda.

The value of energy and utilities for development

Electricity is needed to power smallindustry and enterprises, run health clinicsand light schools. Without access toreliable electricity, rural poverty will not be eradicated. The World Bankestimates that nearly 75% of thepopulation in sub-Saharan Africa lacksaccess to electricity. 700 million people in South Asia similarly do not have powerto their homes and businesses.62

Lack of access to electricity often resultsin aggravated environmental degradationand pollution arising from reliance onbiomass fuels, with firewood thetraditional energy source. Firewood isusually gathered by women and children,the daily task often taking hours andacting as an impediment to earnings and education.

Network safety is frequently poor indeveloping countries as high-voltagepower lines are often damaged andexposed. Frequent power outagesimpede performance for local businesses,with losses in productivity and revenues.Employees and entrepreneurs sufferthrough loss of earnings. Manybusinesses are forced to rely on costlygenerators, adding considerably to totalenergy costs.32

CDC portfolio company

CDC’s largest investments in energy & utilities5

£70m Songas, Tanzania Energy generation33

£32m Empower, South Africa35

Multi-utilities

£11m Teknicast, Malaysia46

Equipment and services

£7m WSP Holdings Ltd, China66

Equipment and services

£7m Gulf of Guinea Energy Limited,Nigeria137

Oil, gas and consumable fuel67

“No profit seeking companycan afford to bet on Africa’sunreliable power (…) as thesource of its manufacturedinputs. Of course, wereAfrica’s dire infrastructurepredicament remedied, itschange for higher-value tradecould dramatically improve.”

Dambisa Moyo, author of the book “Dead Aid”, p. 120-121.

Portfolio value by region (£m)

1

23

4 5 1 Africa £90m2 China £9m3 India £2m4 Other Asia £18m5 Latin America £7m

Number of companies by region

12

3

4

5 1 Africa 212 China 53 India 64 Other Asia 85 Latin America 4


Tsavo has been commercially operationalsince 2002. Unlike many other energygeneration plants in sub-Saharan Africa, it abides by the International FinanceCorporation’s (IFC) environmental andhealth and safety guidelines for powergeneration. During the decade of CDC’sinvestment, Tsavo has substantiallyimproved environmental management andcan be considered a role model for powergeneration in the region.

The Azito power plant, near Abidjan inCôte d’Ivoire, is another CDC investmentbuilt in full accordance with IFC’senvironmental and health and safetyguidelines. It is considered to be one of the most modern power stations in West Africa.

The sale of Globeleq released overUS$1bn for re-investment by CDC in poorcountries. CDC and its fund managerActis consequently established a new US$750m emerging marketsinfrastructure fund focused on the poorestcountries in sub-Saharan Africa andSouth Asia.

Through the Global Environment Fund(GEF), CDC invests in Duoyuan GlobalWater, a water treatment equipmentsupplier in China. As a provider ofcirculating water treatment, waterpurification and wastewater treatment,Duoyuan is contributing to China’s abilityto tackle its water problems, includingwater supply, water quality, infrastructureand effluent treatment capacity. Thecompany has had a full environmental,social and governance (ESG) review as part of its ISO certification process.Issues identified were addressed throughan environmental action plan. The actionplan’s execution is a covenant in the legal agreements signed with GEF, andrequires Duoyuan to meet the standardsfor environment, health and safety set by the IFC which are shared by CDC.65

Globeleq has played an important role in economic development by helping toprovide reliable, affordable energy andincreased access to electricity for large numbers of new customers indeveloping countries.

In 2007, Globeleq sold its operatingpower businesses in Latin America, North Africa and Asia, to two internationalprivate sector companies. The energygeneration and distribution companies in sub-Saharan Africa were retained forfurther investment and improvement over the coming years and are managedby CDC’s fund manager Actis. These investments include:

A major natural gas producer in Tanzania,Songas is CDC’s single largest investmentworldwide, representing an investmentvalue of £70m. Songas provides cleanenergy to the Tanzanian national grid andindustrial users in Dar es Salaam. TheSongas-owned gas-to-electricity projecton Songo Songo island becameoperational in 2004 and currentlyaccounts for 20% of Tanzania’s installedpower generation capacity. Previously,Tanzania’s primary source of energy wasimported oil. Songas provides asignificantly cheaper source of locallygenerated electricity. The cost of powerdelivered in Tanzania has halved fromUS$0.11 to US$0.06 per KWh and theheavily indebted Tanzanian economy hasbeen able to reduce its dependency onexpensive oil imports.64

Songas also brings environmentalbenefits as gas is a cleaner source of energy than oil.

CDC’s investment in the Tsavo heavy fueloil turbine power plant near Mombasa in Kenya, began in the 1990s when theKenyan government introduced improvedenvironmental legislation and policyreforms for private sector investments.

Energy & utilities continued


Umeme, UgandaUpgrading an ailing powerdistribution network

Umeme is the prinicipal power distributioncompany in Uganda. Formerly state-owned, Umeme’s network covers asignificant proportion of Uganda andincludes 230,000 poles and 17,000 km of overhead cable.

Umeme has played an important role inincreasing access to electricity. 88,000new customers have been connected byUmeme since its creation, while over 30rural electrification schemes have beenconnected to the Umeme grid.

At the time of CDC’s investment in 2005,Umeme’s network was in a state ofdisrepair as a result of historicunderinvestment. The challenge and scale of turning the business around wereconsiderable and this was recognisedfrom the outset. Consequently, over the last four years, Umeme’s capitalexpenditure programme of US$60m has focused on upgrading and improvingkey areas of the business.

The refurbishment and strengthening ofthe network has been central to CDC’sprimary commitment to make the networksafer. Falling power lines, caused bydecades of underinvestment, have beenthe cause of serious accidents, often fatal.Power lines come down for a variety ofreasons, the most common of which isthat existing poles have decayed causingthe network to collapse or old cables to fall during the rainy season.

Before Umeme took over the concessionof Uganda’s power distribution network,the data regarding serious accidents waspoor. However, there is anecdotalevidence that there were about 30 fatal

accidents each year. In the four yearssince CDC’s investment in Umeme, the number of fatalities was 53 in total, a cause of serious concern. The numberof fatalities is expected to fall as aconsequence of a sustained programmeof renewed safety measures and renewed investment by CDC’s fundmanager Actis.

In addition to the investments in replacingand upgrading old power poles andcables, Umeme has undertaken anextensive safety outreach programme to educate the Ugandan public. Safetyawareness information has beencommunicated extensively to ruralpopulations through radio bulletins,leaflets, community talks and newspaperarticles. A far reaching schools educationprogramme, featuring electrical safetytalks and advice, has also beenimplemented. In 2008, Umeme staff andspecialised safety experts visited 2,333schools throughout Uganda as part of this programme. Umeme’s public safetyawareness raising campaign is continuingin 2009.

Upgrading and maintaining the networkand its infrastructure is a continuousprocess. A further US$100m is earmarkedto be invested in network restoration overthe next four years.

In economic terms, over 1,000 new jobshave been created through contracts with several experienced local Ugandanengineering firms to carry out therefurbishment works on Umeme’s powerdistribution network.

Ugandan electricity consumers havebenefited from the new investments in the construction of new substations andrefurbishment of existing substations.Improved customer billing systems and a readily available call centre have alsobeen introduced.

Umeme’s climate changecontributions:

• Much of the electricity distributed byUmeme comes from hydropower. Thisis a much cleaner source of power thanother alternatives, such as oil or coal

• The World Bank report “Catalysingcarbon investment for a low carboneconomy – World Bank progress onrenewable energy and energy efficiency2007” lists Umeme as one of theirenergy efficiency projects.

Key data*

CDC investment: US$40mInvestment period: 2005 – presentShareholding: 100% owned by CDCSector: Power distributionFund manager: ActisNew power distribution customers: 88,000Employment: 1165Employment growth: 1000 (contractors)Turnover: US$233mEBITDA: US$32mTaxes paid: US$4m

*Data for turnover, EBITDA and taxes is from 2007.







CDC’s fund managers have investments in ICT companies in 23 countries

the Democratic Republic of Congo (DRC),half of them broken.

ICT can bring critical health services andeducation opportunities to people living in remote areas. Financial services for the poor are also increasingly availablethrough the mobile phone network,substantially reducing the costs of creditcompared to traditional local providers of small loans.

The number of customers in India usingGSM technology has now reached about290 million. Between February and March 2009, the figure rose by 11 million,the highest monthly addition of newmobile GSM phone subscribers ever to any market.68

CDC’s investments in ICT

CDC was one of the first investors in thepan-African mobile telephony businessCeltel in 1998, when there were only two million mobile phones in Africa. Celtel brought mobile communicationtechnology to millions of Africans for thefirst time. Africa is now the fastest growingregion in the world for mobile telephony,with at least 100 million mobile phones in operation throughout the continent.When CDC’s fund manager Actis sold its investment in Celtel in 2005, Celtel

The value of ICT for development

Information and communicationtechnologies (ICT) can help businessesreach new customers and suppliers,access sources of finance and tap into market information on prices andcustomer preferences. Individuals canconnect to their families. People candiscover new opportunities. Access to international knowledge about newtechnologies, events and trends is also important to fuel growth anddevelopment, as well as to promotedemocratic processes.

An increase in telephone and internetpenetration is both directly and indirectlyassociated with economic growth. A study by the International FinanceCorporation (IFC) on the impact of mobilephones in developing countries indicatesthat a 10% increase in telephone usagecan lead to a direct GDP gain of 0.6% and a larger indirect gain.9

In Africa, fixed telephone line coverage is only available to 1% of the population.9Much remains to be done to extend thefull range of ICT access to poor countries,especially to sub-Saharan Africa and ruraland isolated communities throughout thedeveloping world. Until recently, therewere only 3,000 fixed telephone lines in

Improvements in communications have a profound developmentimpact, opening opportunities for businesses, communities andindividuals in isolated and rural areas.

Information & communication technologies (ICT)

CDC’s portfolio company

expand into Ghana, Côte d’Ivoire andSierra Leone.

CDC’s fund manager Avigo has investedin Comat Technologies, an Indian ICTcompany. Comat serves primarily ruralareas using kiosks to provide internetaccess together with information on crops and cattle, healthcare and financialservices. Government ration cards andfood coupons are also available at thekiosks, as well as information abouteducational courses, mobile phone top-ups and railway tickets.

CDC is invested in MTN-CI, through itsfund manager ECP, which is the leadingmobile phone company in Côte d’Ivoire.MTN-CI has almost three millionsubscribers and employs 580 people. Itsmobile telephony products are distributedthrough a network of over 200 wholesaledealers and 60,000 independent resellersin Côte d’Ivoire providing high qualityemployee opportunities in this post-conflict country.69

In Papua New Guinea (PNG), Data Netsis one of only four companies providinginternet access and solutions to localbusinesses. Internet penetration in PNG is currently among the lowest in the world,1.5%, which Data Nets is committed toexpand. With an investment from CDC’sfund manager Aureos, Data Nets iscurrently expanding its services to includedisaster recovery, internet hotspots, homewireless products and controlled internetaccess at schools. The internetconnectivity for schools is expected to be provided at cost, as Data Nets’ CEOviews internet access for the young as a vital element in PNG’s social andeconomic development.


1234

5

6 1 Sub-Saharan Africa £33m2 China £1m3 India £10m4 Other Asia £3m5 Latin America £5m6 North Africa £31m


12

3

4

56 1 Sub-Saharan Africa 22

2 China 53 India 154 Other Asia 65 Latin America 46 North Africa 4

With over 20,000 telecom towers andassociated facilities, the expanding Indianwireless infrastructure provider BhartiInfratel Industries is expanding rapidly witha focus on rural India with an investmentfrom CDC’s fund manager AIF Capital.

CDC’s second largest Indian investment in ICT through the fund manager BaringPrivate Equity Partners India, MphasiSoffers IT solutions to companies acrossdifferent industries, including financialservices, logistics, telecom, technology andretail. The company is expanding rapidlyand grew by 124% from 2003 to 2008.

Entrepreneurs in poor countries can alsobe innovators of ICT solutions. CDC’sinvestment portfolio includes promisingexamples of local innovation for thebenefit of poor countries. ETranzact, aNigerian ICT company with an investmentfrom CDC’s fund manager African CapitalAlliance, has developed a new platformfor payments over the mobile phone.ETranzact’s technology gives poor andpreviously unbanked people access topayment services, allowing them topursue new economic opportunities.ETranzact’s technology also has a positivegender dimension as it is much safer forwomen in Nigeria to make payments overthe mobile phone than to carry cash or goto a bank withdrawal point. With VISA,Mastercard and other credit cardcompanies absent from Nigeria, thedemand for non-cash payment systems issubstantial and ETranzact rapidly acquiredfive million users of its mobile cashpayment system. 1.5 million of ETranzactsnew customers did not previously havebank accounts. ETranzact now plans to

covered 30% of Africa’s population withprovision of mobile phone servicesthrough 13 different operating companies.Celtel at the time served eight millioncustomers, employed 3,500 people inhigh quality jobs, and supported some30,000 indirect jobs. Celtel helped createa new cadre of African leaders throughtraining top employee teams at theLondon Business School. The company’sfounder, Dr Mo Ibrahim, now runs his owncharitable foundation focusing on goodgovernance and leadership in Africa.Celtel’s success has shown that it ispossible to thrive doing business in sub-Saharan Africa by working in anefficient, responsible and ethical way.

CDC’s ICT investments include largebusinesses in wireless telecommunicationservices and infrastructure as well as small and innovative ICT start-ups. CDC’s fund managers have substantialinvestments in companies driving theNigerian mobile telephony revolutionthrough MTN Nigeria, Starcomms (aninvestment successfully exited by CDC’sfund manager Actis in 2008) and HeliosTowers. MTN is currently rapidly rollingout coverage to other countries in WestAfrica, including Cameroun and the DRC.CDC’s fund manager Helios has alsoinvested in Africa Tel, which is extendingmobile telephony access across Angola.In India, CDC’s fund managers haveinvested in several ICT companies,including Bharti Infratel Industries, whichis rapidly rolling out increased wirelesscoverage across India, and MphasiS, an IT solution company.


CDC’s largest investments in ICT5

£37m Orascom Telecom, AlgeriaWireless telecoms services59

£19m MTN NigeriaWireless telecoms services70

£8m Africa Tel, Angola71

Diversified

£4m MphasiS Limited (XYZ Limited),IndiaSoftware & services72

£3m Nextel, Brazil Wireless telecoms services73


have historically dominated provision offinancial services in developing countries,privatisation of financial institutions andtheir deregulation has been widelyimplemented and provides the basis forexpansion of more efficient and expansiveprivately run financial services institutions.Privatisations have led to increasedeffectiveness of financial serviceinstitutions in poor countries andincreased availability of financial servicesfor new and growing businesses.Increased diversity of financial institutionsalso serves to improve transparency, withfewer instances of corruption.

Financial services in rural areas still relyheavily on the informal sector, wherevillage money lenders can often chargeextraordinarily high interest rates. In suchsettings, expanding the reach ofcompetitive services through localintermediaries can greatly improveaffordable access to business andpersonal loans.

CDC’s investments in financial services

CDC’s major investments in financialservices, through its fund managers,include DFCU, a finance provider toenterprises in Uganda; Diamond Bank, aleading Nigerian bank; Alexander Forbes’ssubsidiary in South Africa; the National

The value of financial services for development

Vast swathes of land in rural areas areunderserved by banks. In Uganda, forexample, only 15% of households save in financial institutions.74 Lack of access to finance for businesses in developingcountries is commonly realised as one of the most important barriers to growth.Where credit is available, it is oftenprohibitively costly. Commercial loans forgovernments are also heavily constrained,reducing flexibility for public investment.

Financial institutions fuel economicgrowth and private sector developmentby helping to allocate financial resourceswhere they are the most productive.Numerous empirical studies have shownthat the deepening of the financialservices sector leads to higher rates ofcapital accumulation and higher levels of per capita income. The financial sectorcan stimulate poverty reduction bymobilising savings for productiveinvestments, facilitating remittances from abroad and enabling secure savings and insurance.75

Banks and other financial institutions are a major source of relatively high-skillemployment and tax revenues for localgovernments. While state-owned banks

Businesses need financing to grow and prosper. Loansand other sources of finance are in short supply in manydeveloping countries, especially in sub-Saharan Africa.

Financial services (excluding microfinance)

CDC’s fund managers have investments in financial services (excluding microfinance) in 29 countries

Investments




74,000 people employed in the 112 portfoliocompanies which reporteddata in 20083


Microfinance Institution in Africa in 2007by Micro Capital and the Financial Times/IFC Sustainable Banking Award for Africaand the Middle East in 2009.

Ecobank, with an investment from CDC’sfund manager ECP, was the first privately-owned regional commercial bankinginstitution in West Africa. Since it launchedits first subsidiary in Togo in 1988,Ecobank has grown to be the 15th largestbanking group in sub-Saharan Africa.69

Banque Commerciale du Rwandahas pioneered the extension of bankingservices to previously unbanked sectorsof the Rwandan population with aninvestment from CDC’s fund managerActis. Mobile banking vans and depositaccounts without minimum balancerequirements have greatly extended itsreach. Banque Commerciale du Rwandasupports the charity sector by fundinghospital equipment and supportingwidows, orphans and other survivors of the 1994 genocide. Actis has workedwith Banque Commericale du Rwanda to improve corporate governance, stafftraining and internal controls. The bankhas implemented CDC’s and Actis’business principles for responsibleinvestment in its credit policy. Actis alsohelped the bank to develop an anti-moneylaundering policy and to recruit staff withthe right skills.


broking, employee benefit administration,actuarial services, asset managementconsulting, multi-management investmentservices and alternative risk finance andunderwriting solutions.79 CDC was a directinvestor in Alexander Forbes’ expansioninto Africa. CDC’s fund manager Actiscurrently manages CDC’s investment inAlexander Forbes’ South Africansubsidiary. Alexander Forbes in SouthAfrica has funded activities to providecare for the elderly and the disabled,HIV/AIDS prevention and treatment,support for female entrepreneurs, andenvironmental protection. CDC and Actis are presently closely tracking theconsequences of allegations ofmismanagement at Alexander Forbes.

Equity Bank was established in Kenya in1982 as a building society to serve the‘unbanked’ and to provide products andservices that economically empower itscustomers. It is now the largest bank inEast Africa in terms of customer base,with about 3.4 million account holders inKenya and Uganda. The bank currentlyopens around 3,000 new accounts eachday. Equity Bank’s diverse range of loanproducts are targeted to specific needsincluding SME loans, microfinance andagribusiness loans. 70% of Equity Bank’scustomers have never previously held abank account. CDC’s fund managerHelios provided an investment for furthergrowth for Equity Bank, in particular forregional expansion and consolidation with other microfinance institutions. Equity Bank recently acquired UgandanMicrofinance Ltd and has opened a branch for microfinance services inSouthern Sudan. Equity Bank has wonnumerous awards for innovation andservice delivery including Best


1

2 3 4 1 Sub-Saharan Africa £114m2 Asia £29m3 Latin America £6m4 North Africa £2m


1

23 4 1 Sub-Saharan Africa 110

2 Asia 313 Latin America 134 North Africa 2

CDC’s largest investments in financial services5

£37m DFCU, Uganda Diversified financial services34

£32m Diamond Bank, Nigeria Commercial banks36

£22m Alexander Forbes, South AfricaDiversified financial services80

£10m National Stock Exchange of India, India Capital markets47

£8m Equity Bank, Kenya Commercial banks81

Stock Exchange of India, and EquityBank, a rapidly growing bank in East Africa.

With 45 years of provision of financialservices, the Development FinanceCorporation of Uganda (DFCU) isassociated with many of Uganda’ssuccess stories in education, healthcareservices, manufacturing and agro-processing. CDC cofounded DFCUtogether with the Ugandan government in1964, and has since then played an activeinvestor role with strategic developmentadvice.76 CDC’s investment in DFCU iscurrently managed by CDC’s fundmanager Actis. As Uganda’s largestfinancial entity, and a leading player inUganda’s economic development, DFCUhas been working over time to extend itsreach to underserved communitiesthroughout the country. DFCU alsoallocates grants to communitydevelopment programmes and sponsorsenvironmental conservation, sanitationservices and provision of healthcareservices for the poor.77

Founded in 1991, Diamond Bank is oneof Nigeria’s leading banks. CDC was anearly investor in Diamond Bank. CDC’sfund manager Actis took over themanagement of this investment in 2004.Diamond Bank focuses on providingaccess to finance for small and mediumsize enterprises (SMEs). The bank’scorporate social responsibility activitiesinclude funding for HIV/AIDS programmesand efforts to address avoidableblindness. Diamond Bank also supportseducation programmes and other youthdevelopment initiatives.78

Alexander Forbes is a leading provider of risk management services, insurance


CDC’s strategy for microfinance has been to invest in greenfield and earlyexpansion equity for commercial MFIs,committing over US$50m to microfinanceequity funds. Over 60% of CDC’s equityinvestments in microfinance is for India,which remains a focus for CDC’smicrofinance investments. The remainderof CDC’s microfinance portfolio has a global orientation. CDC has alsocommitted U$30m to a microfinance localcurrency debt fund that directly addressesthe issue of currency risk MFIs face inrelation to foreign debt funding. CDC’sgoal is to continue to support themicrofinance sector primarily throughexisting fund managers, with a target of committing up to US$120m in newcapital to MIVs by 2011.

Microfinance remains a commerciallyviable investment opportunity which isstrongly aligned with CDC’s goals of highdevelopment impact. CDC’s investmentsinclude 48 different underlying MFIs, witha total portfolio value of £25m. CDC isinvested in these 48 MFIs through sixmicrofinance equity funds and one local currency debt fund. 14 of themicrofinance institutions where CDC’scapital is invested are located in sub-Saharan Africa. 31 are in Asia, with 12 microfinance institutions supported byCDC’s capital in India. CDC also supportsthree microfinance institutions in Latin

Microfinance institutions provide accessto credit to the rural and urban unbankedin developing countries. MargueriteRobinson, a microfinance specialist,describes microfinance as “small-scalefinancial services for both credits anddeposits that are provided to people who farm or fish or herd; operate small or micro-enterprises where goods areproduced, recycled, repaired, or traded;provide services; work for wages orcommissions; gain income from rentingout small amounts of land, vehicles, draftanimals, or machinery and tools; and toother individuals and local groups indeveloping countries, in both rural andurban areas.”82 Microfinance promotessocial entrepreneurship and the ability to develop sustainable businesses forpeople subsidising at the “bottom of thepyramid”.83

For a number of years, CDC has providedcapital to microfinance investmentvehicles (MIVs) that have invested inunderlying portfolios of microfinanceinstitutions (MFIs) serving the poorglobally. With its new investment policy for 2009-2013, CDC continues to supportpioneering investment efforts in themicrofinance sector in low incomecountries in sub-Saharan Africa andSouth Asia.

Microcredit loans can help previously unbanked people createsustainable sources of income and move up the economic ladder.

Microfinance

CDC’s fund managers have microfinance investments in 26 countries

Investments


48 microfinance institutionsin 26 countries


27,000 people employed in the 42 microfinanceinstitutions which reporteddata in 20083

US$25m in taxes paid bythe 24 microfinanceinstitutions which reporteddata in 20084


• Advans, which was set up to establish a network of greenfield MFIs primarily in francophone Africa and Asia. Advansis a lead shareholder in AMRET inCambodia which is one of the leadingMFIs in the country serving over200,000 borrowers with a total loanportfolio of US$54.5m.

• Catalyst, which was set up to build a network in Asia and Africa of highlyefficient and rapidly growing MFIsprimarily replicating the ASAmicrofinance model from Bangladesh.

• India Financial Inclusion Fund, whichwas set up to provide financing to Indian MFIs that are ready forexpansion, with an emphasis on rural cities and towns with low microfinance penetration.


12

3

45 1 Sub-Saharan Africa £4m

2 China £1m3 India £6m4 Other Asia £12m5 Latin America £2m

Number of microfinance institutionswith CDC investment by region

12

3

4 5 1 Sub-Saharan Africa 142 China 13 India 124 Other Asia 185 Latin America 3

America, with a combined portfolio valueof £2m. New investments by CDC’s fundmanagers in microfinance institutionsamounted to £10m in 2008.

A large number of people benefit fromimproved livelihoods from the loansprovided by the microfinance institutionssupplied by CDC’s capital. CDC iscurrently working with its microfinancefund managers to receive more accurate data on numbers of borrowers,the percentage of these borrowers that are women and whether theseborrowers live in rural areas that aretraditionally underserved by financialinstitutions.

Some examples of CDC’s investmentsin microfinance include:

• Lok Capital, which delivers equitycapital and capacity building to some of the poorest households in India.

• ShoreCap International, a globalinvestor in microfinance through whichCDC has invested in BRAC Bank in Bangladesh and, more recently, in BRAC Bank in Afghanistan.

• Access, which aims to build a networkof microfinance banks in Africa andCentral Asia. Access has successfullyestablished AccessBanqueMadagascar, which is the first large-scale bank in Madagascar specialisingin providing financial services formicroenterprises. In just over two years, the bank has built a customerbase of 13,800 depositors and over5,000 borrowers, expanded to sixbranches and employs over 200people. More than half of its borrowersare women.

CDC’s largest investments in microfinance institutions5

£2.5m MFBA, Azerbaijan84

£2.1m Equitas Micro India PrivateLimited, India85

£1.9m A Little World Private Limited,India86


Mining

£64m portfolio value£17m invested in 200829 portfolio companies16 countries with CDC investments65,000 people employed in 21 portfolio companies which reporteddata in 20083

US$350m in taxes paid by 19 portfolio companies which reported data in 20084

Mining involves exploration for newnatural resources and their subsequentextraction, both of which generally requirea great deal of capital. Mining extractionoften provides a large number of jobopportunities, as well as substantialconcession, tax and royalty revenues for governments.

The development of mining operationshas spin-off benefits for localcommunities. These include developmentand improvement of infrastructure such asroads, power, water, and communications;provision of health and educationfacilities; as well as the creation ofemployment opportunities and training.Companies developing or operatingmining businesses may become involvedin local community projects such asbuilding schools and hospitals.

Mining can inflict severe damage on theenvironment if appropriate safeguards are not followed. Mining jobs can also be dangerous for workers, who may beworking without the benefit of properemployment contracts. Localcommunities can be adversely affected;sometimes entire villages are displaced by mining operations. Mining sites canalso encourage local criminality andprostitution. Mining is furthermore proneto corrupt payments to governments by

companies wishing to acquire newconcessions or extend existing contracts.

Provided that the multiple challenges ofmining activities from the environmental,social and governance (ESG) perspectivescan be overcome, mining is a verypromising sector for investment and an important vehicle for development and poverty alleviation.

CDC provides the Extractive IndustriesTransparency Initiative (EITI) through itsfund managers investing in mining.

At East Africa Gold Mines a mine in Tanzania with an investment from CDC’s fund manager African Lion andprevious investment by Actis,implementation of international goodpractice standards across all areas ofESG matters was rigorous. Significantly,the mine’s activities involved resettlementof parts of the local community which wassuccessfully managed. The company’smanaging director was made an honorarylocal chieftain in recognition of his efforts.East Africa Gold Mines also contributed to the local Tanzanian community throughthe building of schools, hospitals andother infrastructure.

Industry & materials


US$244m in taxes paid by 91 portfolio companies which reporteddata in 20084

Over the long term, industry accounts for alarge and fast-growing part of developing

countries’ economies. Industry generatessignificant employment opportunities,including means for women to gaineconomic independence. Industrialproduction often provides relatively secureand well-paid jobs compared to traditionalsectors like agriculture.

Developing countries, led by China andIndia, accounted for about 30% of theworld’s industrial production in 2008compared to 16% in 1990.91 One of thereasons behind the increasing share ofdeveloping countries in global industrialproduction is the shift of manufacturinglocations, including assembly of finalproducts, from more expensiveproduction locations in Europe, the UnitedStates and Japan to developing countrieswith lower wage levels. As foreign anddomestic companies in developingcountries tap into the local labour marketsfor increased industrial production, wagesare gradually driven up and the people in these countries become wealthier.

Until the recent global economic crisis,fast growth in both Chinese and Indianmanufacturing sectors brought hundredsof millions of people out of the rural sectorinto wage paying jobs, lifting them andtheir families out of poverty. As domesticdemand increases with income levels, itsupplants exports as an engine of growth,further reinforcing the cycle of economicgrowth and development.

Dalmia Cement in India, with aninvestment from CDC’s fund managerActis, has seen turnover grow by 62% in three years, with major further capacityclose to coming on stream. With theassistance of Actis, Dalmia has mademajor improvements in energy efficiencywhich has resulted in lower costs as wellas lower greenhouse gas emissions. Itwon the prestigious Greentech ExcellenceAward in 2008 for its efforts.92

CDC’s largest investments in mining5

£27m Mozal, MozambiqueMetals and mining87

£10m Mineral Deposits, SenegalMetals and mining88

£10m Moepi Platinum Ltd, South AfricaMetals and mining89

£8m Copperbelt Minerals, Democratic Republic of CongoMetals and mining90

£5m Sinai Marble, EgyptMetals and mining61

CDC’s largest investments in industry & materials5

£17m Alstom Electrical Industries,South AfricaIndustrials, commercial services and supplies93

£16m Savcio, South AfricaIndustrials, commercial services and supplies94

£7m Ceylon Oxygen, Sri LankaMaterials, chemicals95

£5m TEMA, India Industrials, commercial services96

Brief industry sector reviews


Agribusiness



Agricultural production, whether throughlarge scale plantations or subsistencefarming, still accounts for a major share of the economy and livelihoods in mostpoor countries. 34% of GDP and 64% of employment in low income countries, on average, are accounted for byagribusiness – including production,marketing, logistics, processing anddistribution of food supply.9 Muchemployment in agribusiness is, however,neither well-paid nor secure.

Given the right structures of landownership and functioning markets, the key constraints for expansion ofagricultural production are likely to includefinance for the development of newcompanies and the implementation of new technologies. Attention toconservation, labour and workingconditions and health and safety areessential to ensure that agribusiness and forestry minimise harm done to theenvironment and safeguard conditions for workers and communities. Sustainableagribusiness and forestry can haveimportant benefits for climate change to counteract the release from industriesof greenhouse gases.

In Kenya, Grain Bulk Handlers, whereCDC is invested through ActisAgribusiness Fund, employs 175 skilledworkers on a permanent basis and 750contracted labourers per day, operatingfrom Mombasa. The company provideslogistics solutions for grain cargotransported within East and Central Africa.The company is widely considered to bethe most efficient bulk grain handlingfacility in Africa, and is capable of a dailydischarge rate from bulk grain vessels ofover 10,000 tonnes. Grain Bulk Handlersis currently expanding its silo storagecapacity to over 150,000 tonnes, whichwill bring many further employmentopportunities for the local population.97

The vision of the company’s CEO is tomake the port of Mombasa a hub forregional food trade as well as foremergency relief.98

Consumer goods & services

£152m portfolio value£59m invested in 2008119 portfolio companies25 countries with CDC investments211,000 people employed in90 portfolio companies which reporteddata in 20083


Domestic demand for all goods andservices increases with income levels. In its October 2008 economic outlookreport, the International Monetary Fund(IMF) forecasted that the gross domesticproduct (GDP) of emerging anddeveloping economies, in purchasingpower parity terms, would account formore than half of the global economy by 2013, up from 45% in 2008.104

The production of consumer goods andthe provision of services are majorsources of employment for large numbersof people all over the world, not least inpoor countries. These opportunities applyto both men and women, with womenoften highly represented in service sectorjobs. Livelihoods of large numbers of self-employed people are also sustained fromsmall sales activities of consumer products.

The rapidly rising number of middle classhouseholds and youth across most of thedeveloping world are benefiting from theincreased availability of all kinds of goodsand services. New retail outlets and mallsallow firms to benefit from economies ofscale and reduce prices. With increasedlocal production and imports both fromOECD countries and local neighbouringcountries, the increasing numbers ofconsumers in developing countries arebenefitting from increased choice andbetter quality of products of all types.

Deacons is a Kenyan retailer with aninvestment from CDC’s fund managerAureos, which has played an importantrole in moving sales of clothes and otherconsumer items from informal markets toretail stores. Deacons now sells clothing,footwear, accessories and homewaresthrough 19 stores across Kenya, Tanzaniaand Uganda and is a large and growingtax contributor to the Kenyan publicpurse. By partnering with a breast cancerawareness non-governmentalorganisation (NGO) to introduce cancerscreening alongside the female underweardepartments in its retail stores, Deaconsraised awareness of breast cancer andachieved a huge surge in the sale ofbrassieres. It now controls 80% of theKenyan formal market for femaleunderwear.

CDC’s largest investments in agribusiness5

£10m Kilombero Valley Teak, TanzaniaForestry99

£7m Grain Bulk Handlers, KenyaFarming100

£6m Equatoria Teak Company,Southern SudanForestry101

£5m Shuanghui International Holdings Ltd, ChinaFood processing102

£3m Thunnus Overseas SA France,Côte d’Ivoire Food staples and retailing103

CDC’s largest investments inconsumer goods & services5

£20m Fuel Logistics, South AfricaConsumer, general105

£18m Regal Forest, El Salvador,Honduras, Guatemala and NicaraguaConsumer, durables and apparel106

£16m UAC of NigeriaConsumer, non durables107

£9m Ambow, ChinaConsumer, general108

£10m Xiabu Xiabu, ChinaConsumer, hotels, restaurants, leisure and travel109


Healthcare


US$83m in taxes paid by19 portfolio companies which reporteddata in 20084

Access to basic and more sophisticatedhealthcare services is a crucialcomponent of social and economicdevelopment. In 2007, less than half ofbirths in South Asia and sub-SaharanAfrica were attended by skilled healthcarestaff, compared with 99% for high-incomecountries.110 Poor health and malnutritionprevent children from attending schooland from learning while there. Theequivalent of more than 200 million schoolyears are lost each year in poor countriesas a result of ill health.111

Public health services fall way short ofmeeting the needs of the populations inmost poor countries and more investmentis critically needed in private sectorhealthcare suppliers. The private healthsector has grown substantially in mostemerging markets in recent years, with services to all income groupssupplementing services provided by thepublic sector. Public private partnershipsare increasingly emerging, with improvedregulations, better licensing and qualitycontrols.9 The healthcare sector, includinghospitals, other healthcare serviceproviders and pharmaceutical companies,is also an important provider of high-

quality jobs and tax revenues for localgovernments. Women often hold jobs inthe healthcare sector, serving as nurses,doctors and research and developmentstaff at pharmaceutical laboratories.Investments in the healthcare sector thus serve multiple reinforcingdevelopment goals.

Arch Pharmalabs is a pharmaceuticalcompany in India with an investment fromCDC’s fund manager ICICI. For its newand expanding drug production facilities,Arch Pharmalabs is working to bringproduction standard in line with UnitedStates Food and Drug Administration(USFDA) standards, corresponding to thehighest in the pharmaceutical industry,and to ensure that all operations are in line with top international environmental,health and safety practices. Whilst thesechanges have added significantly toproduction costs, Arch Pharmalabsconsiders this investment to be a morethan justifiable expense, as it is now aproducer of choice for a large number of global pharmaceutical companies. For example, Arch Pharmalabs providesintermediates for Pfizer’s blockbuster drug Lipitor and produces activepharmaceutical ingredients for genericdrugs for Sandoz, Glaxo SmithKline,Sigma Tau, DSM and Elan. During ameeting with CDC, Arch’s CEO explained:“Bringing our production standards up to USFDA level adds about 50% to ourcosts. However, this is still only about30% of what it would cost Pfizer toproduce in Europe or in the United States.and we can price accordingly. We aregetting new business as fast as we can acquire new production facilities and bring them up to internationalproduction standards”.

Infrastructure



Transportation, telecommunication, realestate and other infrastructure assets are basic drivers for economic growth.Transportation infrastructure, includingroads, ports, railways, airports andservices are critical for domestic andinternational commerce. Expandingmobile telephony services requireinvestments in communicationinfrastructure, extending the network of masts and base stations to rural and remote areas. Businesses indeveloping countries face a limited supply of quality and affordable officespace, hindering efficient operations.

In sub-Saharan Africa, business lossesdue to deficient infrastructure are high,imposing uncompetitive cost burdens onlocal companies. Productivity of Africancompanies is estimated to be 10 to 20%lower on average than comparableChinese businesses, mostly due toincreased costs imposed by poor accessto energy, transportation and other criticalinfrastructure.115 Lack of access totransport is also considered to be a keyobstacle to private sector led economicgrowth in developing countries.32 Roads in low income countries are often of poor

CDC’s largest investments in healthcare5

£28m Paras Pharmaceuticals, IndiaPharmaceuticals44

£7m Amoun Pharmaceuticals, Egypt60

Pharmaceuticals

£7m Harbin Partners, ChinaPharmaceuticals112

£5m Sterling Addlife, IndiaHealthcare providers and services113

£4m Veeda Clinical Research, IndiaBiotechnology114

CDC’s largest investments in infrastructure5

£17m Capital Properties, TanzaniaReal estate management116

£16m Bharti Infratel Indus, India Telecoms infrastructure45

£14m Helios Towers, NigeriaTelecoms infrastructure117

£9m ICH Properties Holdings Ltd, GhanaReal estate management118

£5m Chongqing Real EstateDevelopment Co Ltd (Yingli), ChinaReal estate management119

Brief industry sector reviews continued

Chapter 7 – Industry sectors review and SME funds 81

quality or impassable. It is estimated thatthe 53 countries defined as low income by the World Bank have just 239,000kilometres of roads, whilst the 60 countriesregarded as high income have 3.6 millionkilometres.74

Infrastructure investment requirements in poor countries, along with the need for more efficient management of existinginfrastructure, are generally well beyondwhat the public sector alone can afford.Goldman Sachs estimates that Africa’sinfrastructure bill, excluding water andsanitation, would reach a staggering US$1 trillion if current and future needswere to be met by 2050. In India,approximately US$160bn has beeninvested in infrastructure during the pastfive years. 25 to 30% of this amountrepresented investments by the privatesector. The Indian government estimatesa need for a further US$320bn to $500bnof investment in infrastructure by 2012 tosupport its growing economy.

Established in 2006, Helios TowersNigeria is an independent operator ofmobile phone tower sites throughoutNigeria. It builds and leases space on its towers to local operators, who in thisway avoid the expense of developing andmaintaining their own tower networks.

CDC’s fund manager Helios hassupported the expansion of Helios Towersin three separate rounds of financing andcurrently owns 27% of the business.Helios Towers currently has over 400towers throughout Nigeria, with another100 to be completed shortly. 500 more areplanned for 2009. Helios Towers has best-in-class operations and maintenancepractices by African standards. Each sitehas back-up power generators to ensurea constant electricity supply to the towers,which is crucial in a country where black-outs are still common. Constant powersupply ensures that antennas provideservice without interruption. Helios Towers’

99% uptime rate (compared with thecurrent industry average of about 70%)ensures that the growing numbers ofNigerians that have access to mobilephones can use these for business andpersonal connections with less frequentcut-offs.

With the continued growth and increasingimportance of mobile telephony in Nigeriaand sub-Saharan Africa, Helios Towers iscurrently looking to expand its operationsinto other parts of Africa.

Cleaner technologies

£16m portfolio value£6m invested in 20088 portfolio companies5 countries with CDC investments2,200 people employed in5 portfolio companies which reporteddata in 20083


Cleaner technologies are a fast growinginvestment sector, thanks to theincreasing global awareness of theadverse impacts of human activity on theenvironment. In 2008, revenues fromcompanies focused on clean energy,including solar power, wind power, biofuel,and hydropower, along with companiesdeveloping or marketing technologies toreduce pollution from other energysources, grew from US$76bn toUS$116bn. Total global investments in clean energy reached US$148bn in 2008.120 Projected investments ofUS$630bn by 2030 is estimated totranslate into about 20 million additionaljobs in the renewable energy sector.121

The primary local energy resource of Indiaand China is coal, the most pollutingsource of electricity when burned.Biofuels, wind power, hydro power and

solar photo-voltaics can provide efficientand clean alternative sources of energy for poor or isolated communities, whichhave not previously been connected totraditional energy suppliers.

Affordable innovations aimed at cleaningsewage and industrial wastes, which areoften discharged without treatment intoopen lots or waterways, can preventdamage to health and crops. Bringingsuch technologies within the reach of poor countries can contributesubstantially to their sustainabledevelopment and improve the livelihoodsof poor people.

Himin is a Chinese company with aninvestment from CDC’s fund managerCDH which manufactures solar-poweredwater heaters. The technology is relativelysimple and the product is affordable formost Chinese households. Himin is thelargest producer of solar water heaters in China, with 9% of the market. Thecompany is aiming to achieve 20 to 30%annual growth until 2015. This will involvedoubling production capacity in the nearterm, which is currently 800,000 units peryear. Himin’s main plant in Dezhou is ashowcase for solar technology. Its plant is ISO 9000 compliant, the internationalstandard for quality managementsystems. The company has funded a vocational middle school, whichspecialises in solar energy.

CDC’s fund manager CDH has had a long relationship with Himin, though itsinvestment in the company occurred in2008. CDH is helping Himin to tighten itsinternal controls and to strengthen its topmanagement. With the substantial capitalinjection from CDH, Himin is well placedto consolidate its position in the Chinesemarket and eventually become a worldleader in its sector. If it succeeds in doingso, it will have played a part in improvingair quality in China.

CDC’s largest investments in cleaner technologies5

£10m Umeme, UgandaEnergy distribution122

£5m Moser Baer, IndiaEnergy generation123

£2m DeQingYuan Agricultural Technology Co LtdAgriculture124

£2m MyFuel Ltd, MalaysiaEnergy generation125

£1m PV Technologies India Ltd (a subsidiary of Moser Baer)Manufacturing/industrial126


SME funds

Investments in emerging markets are predominately directed to larger businesses, where returns on invested capital are higher on an absolute scale and risks easier to assess. The lack of access tofinance for SMEs is an important impediment to economic growth.

£57m CDC portfolio value*

170 portfolio companies in 28 countries*




It is easier for larger firms to come intocontact with investors and managementof large companies have more resourcesto demonstrate the type of informationinvestors need for their due diligencebefore making an investment decision.Small and medium size enterprises(SMEs) find it far more difficult to attractcapital. Investors often find the time andresources required to investigate aninvestment opportunity in an SMEdisproportionately challenging compared to the expected returns.

From a development perspective, the difficulty that SMEs experience inattracting capital is a lost opportunity, as SMEs bring important social andeconomic benefits. SMEs are tomorrow’slarge companies but require capital toinvest in expansion to become engines ofgrowth for their economies. SMEs in largenumbers are the backbone of a diversifiedeconomy, offering a range of choice inproducts and services for consumers. The experiences of countries such asSouth Korea and Vietnam demonstratethat thriving SMEs are associated withrapidly growing economies.

SMEs in poor countries are more likely to provide employment opportunities forunskilled and semi-skilled labour thanlarger companies, which generally are

able to choose among the bettereducated employment seekers. For mostpeople that gain employment with SMEs,the alternative is casual labour. SMEsthereby provide a route out of the informallabour market and poverty. Where SMEsare supported by institutional investorssuch as CDC, they often provide moreextensive training to their workforce,which benefits these workers directly and promote labour market mobility.SMEs frequently provide employmentopportunities in regions where largecompanies do not find it worth their while to expand.

SMEs play a significant part in communitydevelopment. A study conducted by theSmall Enterprise Assistance Facility foundthat every dollar invested in smallenterprises generated US$12 for the localeconomy.127 SMEs, because of their roots in communities, are also a useful conduitfor disseminating socially responsiblebehaviour, such as good businesspractice in relation to HIV/AIDS.

SMEs link different sectors of theeconomy together as a significant part of the supply chain for large businesses.Because of their smaller size, SMEs often demonstrate greater flexibility and capacity to innovate than largecorporations.

CDC’s fund managers have SME investments in 28 countries

*Nine of Aureos’ 89 portfolio companies have been excluded fromthe count as they have more than 1000 employees each. Thesenine investee companies employ 47,000 people among them.

Investments

Aureos Capital Partners21 Aureos funds totaling US$984m US$296m committed by CDC toAureos’ funds Regions covered: Asia, (Pacific, South,South-East, Central, China), Africa,(East, Southern, West), Latin America(Central and South)

Avigo SME Fund IIInvestment region: South Asia CDC commitment US$20m; total fund size US$125m

GroFin Africa FundInvestment region: East, West andSouthern AfricaCDC commitment US$30m; total fund size US$125m GroFin East Africa FundInvestment region: East AfricaCDC commitment US$3m; total fund size US$25m

Business Partners InternationalKenya SME Fund Investment region: Kenya CDC commitment US$2m; total fund size US$14m

In China, CDC has committed to threeventure capital funds, which investseed capital for start-up businesses:Legend Capital, Qiming and Keytone.

SME investments

1

2

3

5

4

1 Sub-Saharan Africa £30m2 India £10m3 China £4m4 Other Asia £6m5 Latin America £7m

SMEs by region by value (£m)

1

23

54

1 Sub-Saharan Africa 1162 India 133 China 34 Other Asia 205 Latin America 18

SMEs by region by number of companies

CDC’s investments in SME funds

CDC is a longstanding and active investorin funds that specialise in investing in SMEs.

CDC’s early contribution to SMEdevelopment was in its pioneering work in establishing single country SME fundsin the 1990s. CDC led the establishmentof successful SME funds in Kenya,Zimbabwe and Zambia. Other SME funds that CDC set up were not equallysuccessful from a financial perspective,including early funds in Ghana andTanzania. However, these funds paved theway for a flow of successor SME fundsand, more broadly, for the establishmentof the private equity industry in Africa.

CDC’s SME fund investments in the1990s formed the platform for CDC’smost ambitious contribution to SMEinvestment in the emerging markets,which was the spin-out of Aureos in 2001from CDC’s investment team that focusedon SME investments. The creation ofAureos was a joint venture with Norfund,the development finance institution of Norway. Aureos’ staff came almostentirely from CDC and were initiallyresponsible for managing the SME fundsset up by CDC in Africa, Latin Americaand the Pacific. Aureos raised its firstregional SME fund in 2002, the AureosCentral America fund. Aureos thenprogressed to establish further funds forEast, West and Southern Africa, SouthAsia and South East Asia, thus providingSME investing across the emergingmarkets with much needed growth

capital. In 2008, Aureos raised US$176mfor a new Latin America fund and iscurrently engaged in fundraising for a pan-Africa fund, which is expected to provide US$400m in new financing for SMEs across the continent.

Following CDC’s change of investmentfocus to that of fund-of-funds investor in2004, CDC has been a founding investorin several other SME funds includingAvigo in India and GroFin and BusinessPartners in Africa. These funds havetogether invested in 170 SMEs.128

Chapter 7 – Industry sectors review and SME funds 83


Aureos Capital PartnersResponsible investmentpractices lead toimprovements inenvironmental and socialpractices for SMEs

From small beginnings in 2001, Aureoshas raised 15 regional funds and now has in the range of US$1bn of fundsunder management. On the back of itsSME focus and a solid commercial trackrecord, Aureos has been able to attractover 70 institutional investors in additionto CDC and Norfund, including recently,Colombian pension funds.

Aureos has investments in over 50countries, all over the developing world.The company employs 85 investmentexecutives in 25 offices spread throughoutAfrica, Asia and Latin America. In thechallenging field of SME investing inemerging markets, the creation of a strongand credible private equity fund managerin such a relatively short time is animpressive achievement.

Aureos has been able to build itsinvestment business on a track record of careful and market-orientatedinvestment in SMEs. Its commercial drive is complemented by a strongemphasis inherited from CDC on theappropriate conduct of business indeveloping countries with regard toenvironmental, social and governance(ESG) matters.

Aureos has integrated environmental andsocial criteria throughout its investmentprocess, from due diligence to monitoringand reporting. Investment professionalsare trained in responsible investmentpractice using standards derived fromCDC and the International FinanceCorporation (IFC). With Norfund and IFC,Aureos has instituted an SME SustainableOpportunities Initiative, which providesfinancing for environmental and socialimprovements through concessionaryloans and grants. The bulk of this facility is earmarked for projects in clean energy,energy efficiency and carbon emissions’reductions. The first use of this initiativewas in a project at the Athi River Steelsmelting and manufacturing plant inKenya in 2008 to reduce factoryemissions. Aureos is currently examiningthe possibility of extending theseimprovements to another African portfolio company.

Aureos has launched two significantinitiatives to build capacity in improvedmanagement of SME businesses and topromote responsible SME practices withrespect to HIV/AIDS. Aureos’ trainingprogramme was established with thesupport of the government of India andNorfund and in partnership with a groupof top Indian business schools to providetraining for management in Aureos’portfolio companies. The courses in theprogramme focus on raising operationalefficiency and improving governance. Sofar, over 150 managers from SMEs acrossAureos’ investment geographies haveattended a series of seven courses. Thebenefits are clear: better managementand, in the long run stronger businesses.

A large, important social initiativeundertaken by Aureos relates to thepromotion of HIV/AIDS policies andprogrammes for SMEs to encourageprevention and provide treatment forworkers. In 2007, Aureos initiatedresearch to identify best practices amongits portfolio companies in sub-SaharanAfrica with respect to HIV/AIDS and tofind providers of services who could help SMEs in the battle against HIV/AIDSas well as counteract the other majorpandemics malaria and tuberculosis. 14 best-practice companies wereselected and 150 suitably qualifiedhealthcare providers were found. A reviewof supply chain delivery systems was thenconducted, focusing on how Aureos’portfolio company distribution networkscould be leveraged to deliver healthcaregoods and services to remote rural andhigh density urban populations. Sixindividual supply chains were identifiedthrough which condoms, malaria nets andover-the-counter drugs could be deliveredinexpensively throughout East Africa.Aureos’ effort is estimated to be able to reach over seven million people on aweekly basis. Aureos is currently workingon extending its HIV/AIDS programme toits investee companies, starting with itsportfolio in Africa.

Appendices

CDC’s Investment Code

Performance indicatorsfor CDC’s Monitoringand Evaluation system

CDC’s mission is to generate wealth in emerging markets, particularly in poorer countries, by providing capital for investment insustainable and responsibly managed private sector businesses.

CDC invests in the creation and growth of commercially viable private businesses in poor countries. Commercially sustainablebusinesses, supported by CDC, play a vital part in economic development: they employ and train people, pay taxes, invest in researchand development, and build and operate infrastructure and services. This contributes to economic growth, which benefits poor people.CDC also mobilises private investment in these markets both directly and by demonstrating profitable investments.

Sustainable private sector development requires responsible business management of environmental, social and governance (“ESG”)matters. This Investment Code defines CDC’s principles, objectives, policies and management systems for sustainable and responsible investment with respect to ESG.1 It also includes an Exclusion List, which specifies businesses and activities in which CDCwill not invest.2

1. Principles

CDC, and the businesses in which its capital is invested, will:

• comply with all applicable laws;• as appropriate, minimise adverse impacts and enhance positive effects on the environment, workers, and all stakeholders;• commit to continuous improvements with respect to management of the environment, social matters and governance;• work over time to apply relevant international best practice standards,3 with appropriate targets and timetables for achieving them;

and• employ management systems which effectively address ESG risks and realise ESG opportunities as a fundamental part of a

company’s value.

2. Objectives and policies

2a. The environment

Objectives

• To minimise adverse impacts and enhance positive effects on the environment, as relevant and appropriate, from the businesses inwhich CDC’s capital is invested.

• To encourage the businesses in which CDC’s capital is invested to make efficient use of natural resources and to protect theenvironment wherever possible.

• To support the reduction of greenhouse gas emissions which contribute to climate change from the businesses in which CDC’scapital is invested.4

Policy

Businesses in which CDC’s capital is invested will:

• operate in compliance with applicable local and national laws (as a minimum);• assess the environmental impact of their operations as follows:

> identify potential risks and appropriate mitigating measures through an environmental impact assessment where businessoperations could involve loss of biodiversity or habitat, emission of significant quantities of greenhouse gases, severe degradationof water or air quality, substantial solid waste or other significant negative environmental impacts;5 and

> consider the potential for positive environmental impacts from business activities; and• take appropriate actions to mitigate environmental risks, ameliorate environmental damage, and enhance positive effects as follows:

> where an activity is assessed to present significant environmental risks, work over time to apply the relevant IFC policies andguidelines,6 if these are more stringent than local legislation, with appropriate targets and timetable for improvements; and

> as appropriate, work over time towards international environmental best practice standards.7


1 CDC’s Investment Code is compatible with the 2006 International Finance Corporation (“IFC”) Policy and Performance Standards on Social and Environmental Sustainability (“IFC Performance Standards”).See www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards. A Fund Manager that follows the IFC Performance Standards fulfils the requirements on the Environment and Social Matters set out in thisInvestment Code. The Investment Code is also compatible with the 2007 agreement for common environmental and social standards among the European Development Finance Institutions (“EDFI RomeConsensus”).

2 CDC’s Exclusion List is compatible with those of the IFC and the EDFI Rome Consensus.3 As referenced in this Investment Code and as may develop over time.4 In line with the 1994 United Nation Framework Convention on Climate Change and the associated 2005 Kyoto Protocol (“UN Framework Convention”), see www.unfccc.int/2860.php as may be amended

from time to time.

Appendix 1CDC’s Investment Code

Appendix 1 87

2b. Social matters2b.i. Labour and working conditions

Objectives

• To require the businesses in which CDC’s capital is invested to treat all their employees and contractors fairly and to respect theirdignity, well-being and diversity.

• To encourage the businesses in which CDC’s capital is invested to work over time towards full compliance with the InternationalLabour Organisation (“ILO”) Fundamental Conventions8 and with the United Nations (“UN”) Universal Declaration of Human Rights.9

Policy


• comply with applicable local and national laws (as a minimum);• not employ or make use of forced labour of any kind;• not employ or make use of harmful child labour;10

• pay wages which meet or exceed industry or legal national minima;• treat their employees fairly in terms of recruitment, progression, terms and conditions of work and representation, irrespective of

gender, race, colour, disability, political opinion, sexual orientation, age, religion, social or ethnic origin, or HIV status;• allow consultative work-place structures and associations which provide employees with an opportunity to present their views to

management; and• for remote operations involving the relocation of employees for extended periods of time, ensure that such employees have access

to adequate housing and basic services.

2b.ii. Health and safety

Objectives

• To attain safe and healthy working conditions for employees and contractors of the businesses in which CDC’s capital is invested.• To safeguard the health and safety of all those affected by the businesses in which CDC’s capital is invested.

Policy


• comply with applicable local and national laws (as a minimum);• assess the health and safety risks arising from work activities; and• take appropriate actions to eliminate or reduce risks to health and safety as follows:

> where an activity is assessed to present significant health and safety risks,11 work over time to apply the relevant IFC policies andguidelines,12 if these are more stringent than local legislation, with appropriate targets and timetable for improvements; and

> as appropriate, work over time towards international best practice standards for health and safety.13

5 Activities with potential significant adverse environmental impacts that are diverse, irreversible or unprecedented; mindful of potential cumulative, secondary or synergistic impacts that may occur as aconsequence.

6 The IFC Performance Standards and the 2007 IFC Environmental, Health and Safety Guidelines (“IFC EHS Guidelines”), as may be amended from time to time and adopted by CDC. IFC EHS Guidelinesinclude general guidelines and industry sector guidelines for forestry, agribusiness/food production (including fisheries), general manufacturing, oil and gas, infrastructure, chemicals (including pharmaceuticals), mining and power. See www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards and www.ifc.org/ifcext/policyreview.nsf/Content/EHSGuidelinesUpdate.

7 Including the range of internationally certifiable environmental standards issued by the International Organization for Standardization (“ISO”), the ISO 14000 series, notably including standards forenvironmental management systems (ISO 14001) and greenhouse gas emissions (ISO 14064-65), as may be amended from time to time. See www.iso.org.

8 The ILO Fundamental Conventions are the Conventions on Freedom of Association and Collective Bargaining; Forced Labour; Child Labour; and Non-Discrimination, as may be amended from time to time. See www.ilo.org/ilolex/english/docs/declworld.htm for the texts of these Conventions and a list of the countries that have ratified each of them.

9 See www.un.org/Overview/rights.html.10 As defined by the ILO C138 Minimum Age Convention from 1973 and the ILO C182 Worst Forms of Child Labour Convention from 1999. See www.ilo.org/ilolex/english/docs/declworld.htm11 Activities that could have a severe health or safety impact for workers or affected communities.12 The IFC Performance Standards and the IFC EHS Guidelines, as may be amended from time to time and adopted by CDC. See www.ifc.org/ifcext/enviro.nsf/Content/ PerformanceStandards and

www.ifc.org/ifcext/policyreview.nsf/Content/ EHSGuidelinesUpdate.13 Including OHSAS 18001, the international occupational health and safety management system specification, and industry specific international good practice standards related to the safety of product use,

e.g. the international Good Manufacturing Practice (“GMP”) standards for food and pharmaceutical products promoted by the World Health Organization (“WHO”), see www.who.org.


2b.iii. Other social matters

Objectives

• To be objective, consistent and fair with all stakeholders of the businesses in which CDC’s capital is invested.• To recognise and, as appropriate, promote the social development impact from the businesses in which CDC’s capital is invested.

Policies


• take account of their impact on employees, contractors, the local community and all others affected by their operations as follows:> identify potential adverse effects and appropriate mitigating measures through a social impact assessment in cases involving

resettlement, critical cultural heritage, indigenous peoples, non-local labour or other issues where the negative impact could besignificant;14 and

> consider social development contributions; and• take appropriate actions to mitigate risks, ameliorate negative impacts, and enhance positive effects.15

2c. Governance: Business integrity and good corporate governance

Objectives

• To ensure that CDC, and the businesses in which CDC’s capital is invested, exhibit honesty, integrity, fairness, diligence and respectin all business dealings.

• To enhance the good reputation of CDC.• To promote international best practice in relation to corporate governance in the businesses in which CDC’s capital is invested.16

Policy

CDC, and the businesses in which CDC’s capital is invested, will:

• comply with all applicable laws and promote international best practice,17 including those laws and international best practicestandards intended to prevent extortion, bribery and financial crime;

• uphold high standards of business integrity and honesty;• deal with regulators in an open and co-operative manner;• prohibit all employees from making or receiving gifts of substance in the course of business;• prohibit the making of payments as improper inducement to confer preferential treatment;• prohibit contributions to political parties or political candidates, where these could constitute conflicts of interest;• properly record, report and review financial and tax information;18

• promote transparency and accountability grounded in sound business ethics;• use information received from its partners only in the best interests of the business relationship and not for personal financial gain

by any employee;• clearly define responsibilities, procedures and controls with appropriate checks and balances in company management

structures; and• use effective systems of internal control and risk management covering all significant issues, including environmental, social and

ethical issues.

14 Activities with potential significant adverse social impacts that are diverse, irreversible or unprecedented.15 As relevant, by applying IFC Performance Standards on Land Acquisition and Involuntary Resettlement; Indigenous Peoples; and Cultural Heritage; as may be amended from time to time and adopted by CDC.

See www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards.16 Including the 2004 Organisation for Economic Cooperation and Development (“OECD”) Principles of Corporate Governance, as may be amended from time to time. See www.oecd.org.17 Including the 2005 UN Anti-Corruption Convention, see www.unodc.org/unodc/en/treaties/CAC/index.html; the 1997 OECD Anti-Bribery Convention, see www.oecd.org; and, as relevant, the 2005

Extractive Industries Transparency Initiative (“EITI”), see www.eitransparency.org; as may be amended from time to time.18 CDC promotes the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), see www.iasb.org; and the International Private Equity and Venture

Capital Valuation Guidelines (“IPEVC”), see www.privateequityvaluation.com.

Appendix 1 89

3. Exclusions

CDC’s capital will not be invested in the following businesses or activities:

• production of or trade in any product or activity deemed illegal under applicable local or national laws or regulations, or banned byglobal conventions and agreements, such as certain:> hazardous chemicals, pesticides and wastes;19

> ozone depleting substances;20 and> endangered or protected wildlife or wildlife products;21

• production of or trade in arms, i.e., weapons, munitions or nuclear products, primarily designed or primarily designated for militarypurposes; or

• production of, use of or trade in unbonded asbestos fibres.22

CDC’s capital will not be invested in businesses for which the following activities or products are, or are intended to be, a significantsource of revenue:

• gambling;• pornography; or• tobacco or tobacco related products.23

4. Management systems for CDC’s fund managers24

In order to implement CDC’s Investment Code effectively, CDC requires its Fund Managers to enter into a formal agreement pursuantto which each Fund Manager commits to an investment undertaking similar in substance to sections 1 – 4 of this Investment Code.25

Where Fund Managers have effective control or significant influence over portfolio companies,26 CDC requires its Fund Managers toprocure that such portfolio companies sign an undertaking confirming that they will operate in line with sections 1 – 3 of this Investment Code.

CDC also requires its Fund Managers to establish and maintain ESG management systems27 which:

• assess the impact of all new investments on ESG matters as an integral part of the investment appraisal process;• give new investments a risk rating on ESG issues to determine the appropriate level of management and monitoring;• if an investment is made despite identified shortcomings in relation to ESG issues, or if any issues would arise during the investment

period, assist the portfolio company concerned to develop an action plan to address such issues, with appropriate targets andtimetable for improvements;

• encourage the managers of portfolio companies to work towards continuous improvements in these areas, with targets forimprovements as appropriate;

• encourage the managers of portfolio companies to adopt and implement policies relating to ESG matters, particularly wherebusinesses entail significant risks;

• monitor portfolio companies’ performance on ESG matters and their progress towards relevant action plans and targets forimprovements;

• monitor and record incidents involving portfolio companies that result in loss of life, material effect on the environment, or materialbreach of law, and promote appropriate corrective actions; and

• consider sections 1 – 3 of this Investment Code in all investment and divestment activities.

19 Including those specified in the 2004 Stockholm Convention on Persistent Organic Pollutants (“POPs”), see www.pops.int; the 2004 Rotterdam Convention on the Prior Informed Consent Procedure forCertain Hazardous Chemicals and Pesticides in International Trade, see www.pic.int; and the 1992 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal,see www.basel.int; as may be amended from time to time.

20 As covered in the 1999 Montreal Protocol on Substances that Deplete the Ozone Layer, see www.ozone.unep.org, as may be amended from time to time.21 As covered in the 1975 Convention on International Trade in Endangered Species or Wild Flora and Fauna (“CITES”), see www.cites.org, as may be amended from time to time.22 This does not apply to purchase and use of bonded asbestos cement sheeting where the asbestos content is less than 20%.23 Except, in the case of tobacco production only, with an appropriate timeframe for phase-out.24 For the purposes of the Investment Code, “Fund Manager” means (i) investment fund managers managing capital on behalf of CDC; (ii) financial institutions managing and/or investing capital on behalf of

CDC; and (iii) other intermediated institutions managing and/or investing capital on behalf of CDC.25 By side letter or equivalent agreement. An example of the standard CDC side letter agreement is available on CDC’s website. See www.cdcgroup.com.26 A Fund Manager will be deemed to have significant influence over a portfolio company where its fund has (i) an ownership interest in the portfolio company in excess of 20%, which is presumed to be a level

that allows for participation in the financial and operating policies of a portfolio company (if the percentage is lower but gives rise to the same participation, this will also meet the definition of significantinfluence); or (ii) board representation to a level that allows for participation in determining the financial and operating policies of the portfolio company; or (iii) rights to influence the financial and operatingpolicy decisions of the portfolio company pursuant to a shareholders’ or similar agreement.

27 Further guidance on ESG management systems and assessments is provided in CDC’s Toolkit for Fund Managers, see www.cdcgroup.com. Guidance on environmental and social management systems andassessments is provided in IFC Performance Standard 1, see www.ifc.org/ifcext/enviro.nsf/Content/ PerformanceStandards. ISO 14001 is a certifiable international standard to help organisations minimisehow their operations negatively affect the environment, see www.iso.org.


To demonstrate the implementation of this Investment Code, CDC requires its Fund Managers to:

• report annually on the implementation of their ESG management systems and on the performance of portfolio companies againstsections 1 – 3 of this Investment Code in a format acceptable to CDC;28

• set targets for improvements where appropriate; and• as soon as possible inform CDC about incidents involving portfolio companies that result in loss of life, material effect on the

environment, or material breach of law, and any corrective actions taken.

5. Management systems for CDC

CDC will:

• assist its Fund Managers as appropriate to establish and maintain ESG management systems;• monitor the implementation of the Investment Code through its Fund Managers’ annual reports, with verifications as appropriate;• evaluate its Fund Managers’ implementation of the Investment Code periodically, using internal and external sources as appropriate,

usually:> at the end of a fund’s investment period or the half-way point of the duration of a fund, which would typically be five years after a

standard fund has commenced; and> at the end of the duration of a fund, which would typically be 10 years after a standard fund has commenced;

• in instances where CDC invests directly and independently, establish and maintain ESG management systems substantially similarto those described above for its Fund Managers;

• consider the cumulative effects of CDC’s investments with respect to the Investment Code and:> minimise adverse effects;> maximise development impact; and> promote synergies;

• identify major risks and opportunities associated with climate change in investments and potential investments made by its FundManagers and proactively promote through those Fund Managers the application of international best practice standards in thereduction of emissions of greenhouse gases;29

• incorporate lessons learned into CDC’s future investment strategy;• keep up-to-date on new developments with respect to relevant international agreements and best practice standards; and• review this Investment Code periodically to ensure its continuing suitability and effectiveness.

28 A suggested format for ESG reporting is available on CDC’s website, while other reporting formats could be acceptable. See www.cdcgroup.com.29 In line with the UN Framework Convention, as may be amended from time to time, and including IFC Performance Standards, IFC EHS Guidelines, and ISO 14064-65, as may be amended from time to time

and adopted by CDC. See www.unfccc.int/2860.php, www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards, www.ifc.org/ifcext/policyreview.nsf/Content/EHSGuidelinesUpdate and www.iso.org.

Appendix 2 91

CDC considers the development outcome of each fund investment as the aggregate performance of four parameters:

1. Financial performance

CDC measures each fund’s ability to generate returns for investors and thereby attract commercial capital to poor countries.

The indicators for financial performance include:

• Net internal rate of return (IRR) of funds as compared to the investment target established by CDC at the time of investment.• IRR for each realised exit. • The total amount invested by the fund compared with the total amount committed to it, indicating whether the fund effectively

managed to place all capital allocated to it.

The IRR target is recorded at the time of CDC’s investment. Current valuations and the realised returns from any sales of portfoliocompanies are monitored every quarter, and compiled for CDC’s annual financial results.

At the mid-point of a fund’s investment life, CDC assesses its current investments and, based on current valuations and projectedfuture business performance of the fund’s portfolio companies, makes a judgment on how well a particular fund is performing againstits investment target. This judgment is justified and recorded as a rating along CDC’s six-scale rating categories from excellent to poor.

At the end of a fund’s investment life, CDC evaluates the actual, realised returns of the fund compared to its investment target. At thispoint, CDC has information about the actual financial performance of the fund, as it will have sold all or most of its investee companies.

2. Economic Performance

CDC contributes to economic growth by investing in commercially viable businesses that generate employment and pay taxes. Whilefinancial performance measures returns for investors, economic performance captures the benefits of growing and profitablebusinesses for the wider economy.

CDC assesses the economic performance of each portfolio company by the following indicators, all of which are key parameters for abusiness to provide positive contributions to the broader local economy:

• Profitability and growth in profitability, as defined by earnings before interest, taxes, depreciation and amortisation (EBITDA). • Turnover growth.• Number of employees and growth in employment.• Taxes and other government payments.

CDC seeks to record data on these indicators for each portfolio company on an annual basis.

For evaluations, CDC looks at the number of portfolio companies that showed positive numbers and growth over time in profits,turnover, employment and taxes paid during the investment life and rates the performance of each fund investment accordingly.

Small and medium size enterprises (SME) by definition have lower absolute numbers on the above parameters than large companies,but are as important as larger companies for economic growth. SMEs also face greater difficulties in attracting investment capital, andare therefore an important investment target for CDC. When CDC rates its evaluation results, positive consideration is given to SMEsby granting funds investing in such relatively disadvantaged companies one category higher than they otherwise would have beenrated. Positive consideration is also given to funds with investee companies explicitly serving low income markets and populations, as they can often, at least initially, expect to make relatively lower profits by doing so but make important development contributions to these economically disadvantaged groups.

Appendix 2Performance Indicators for CDC’s Monitoring and Evaluation system


3. ESG Performance

For ESG performance, CDC asseses its fund managers’ abilities to promote responsible business practices with respect to theenvironment, social matters and governance (ESG) to their portfolio companies and the actual ESG performance of portfoliocompanies against CDC’s Investment Code.

At the date of investment, fund managers are to give each portfolio company a risk rating on ESG, indicating whether a company isconsidered to be high, medium or low risk from the environmental and social perspectives, and whether there are risks of businessintegrity issues and/or opportunities to improve corporate governance. CDC similarly records the quality of its fund managers ESGmanagement systems when it invests with new funds, and works with fund managers to improve upon their practices with a particularfocus on fund managers that invest in high-risk sectors from the ESG perspective.

Each year, CDC’s fund managers report to CDC how their portfolio companies perform on ESG matters against the action plans forimprovements that fund managers should establish at the time of investment.

Indicators include:

• Issues and improvements for portfolio companies in each ESG area (environmental management, management of social mattersincluding labour and working conditions, health and safety, and other social matters, and governance, including business integrityand corporate governance).

• Quality of and improvements to the fund managers’ own ESG management systems

For funds that are particularly focused on investing in environmentally positive companies, for example cleaner technology funds, CDCseeks to record portfolio companies with such environmentally beneficial products and services. CDC also seeks to captureinformation about corporate social responsibility programmes and corporate outlays for community development programmes.

For mid-point evaluations, fund managers’ ESG systems are assessed along with the ESG performance of their portfolio companies.CDC notes any issues and discusses necessary improvements with fund managers as a result of these evaluations.

For final evaluations, usually 4-5 years after the mid-point evaluation, these matters are reviewed again to assess the extent to whichimprovements have been achieved.

4. Private sector development

For the final performance dimension, CDC seeks to capture how its investments benefit private sector development. This includesincreased availability of capital for investment in poor countries; local capacity building to improve efficiency of capital markets; typesof investments and exits to indicate efficiency of local capital markets; and funds and businesses that expands into multiple poorcountries and regions. Furthermore, CDC seeks to capture wider enhancements to investment environments in terms of e.g., improvedregulations, and, most importantly, enhancements to the sectors where portfolio companies operate which benefit consumers morebroadly in terms of better access to improved quality goods, services and infrastructure.

Appendix 2 93

Indicators include:

• Increased capital for investment in poor countries: > Amount of third party capital in funds (from development finance institutions (DFIs) and commercial investors)> Debt or other external financing raised by portfolio companies where such data is available

• Local capacity building: > Whether the fund manager is managing a private equity fund for the first time> Whether the fund manager is operating from an office in a developing country (or multiple local offices)> Whether the fund manager has been successful in raising a successor fund> Amount of commercial compared with DFI capital in successor funds

• More efficient capital markets: > Average holding period for portfolio companies> Type of investment, for example, growth capital, privatisation, expansion capital or start-up venture capital> Type of sale of the business, for example, a trade sale or a stock market listing

• Investment context: > Number of private equity firms in the local market at different points in time> Percent private equity investments as a share of GDP

• Improvements to the investment environment in terms of improved regulations, new, improved sector standards, etc.

• Improvements to the sectors where portfolio companies operate, broadly covering positive effects in terms of new or increasedavailability of improved quality goods and services, new infrastructure, new technologies, successful research and development, etc.Increased number of customers should be recorded wherever such information is available.

Information about third party capital and local capacity building is recorded at the time of CDC’s investment, and when new investorsdecide to commit to an existing fund. Information about the other, broader parameters for private sector development are captured aspart of CDC’s evaluation work.

CDC Effectiveness: added value and catalytic effects

CDC also measures the extent to which CDC as an organisation is helping to attract commercial investors to poor countries and theadded value CDC brings to fund managers in emerging markets by helping them shape their investment theses, recruit specialist staff,improve upon their ESG management systems or in other ways.

CDC records how it has worked to help new fund managers in various ways in the documents related to its investment decisions. CDC usually participates in advisory committees for its funds. As for all performance dimensions, an evaluation of CDC’s effectivenessis conducted at the mid-point of a fund’s duration and again at the end of each fund’s life.


1 Low income countries are defined by CDC in accordance with the World Bank’s 2006 categorisation as those countries with Gross National Income (GNI) below US$905 per capital per annum.2 Middle income countries are defined by CDC in accordance with the World Bank’s 2006 categorisation as those countries with Gross National Income (GNI) between US$905 and US$11,115 per capita

per annum.3 Employment data may be from different points in time. The data quoted in this report was provided by CDC’s fund managers in 2008. Some data may refer to contracted or in other ways non-permanent

workers.4 Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances data reported referred to taxes payable. The data quoted in this report mostly refers to taxes paid to local

governments in 2007 and was provided by CDC’s fund managers in 2008.5 Individual company investment values are quoted as per year end valuation 2008. Individual portfolio company valuations do not include CDC’s forward foreign exchange contracts for sterling versus US$

fluctuations. All aggregate portfolio data, e.g., by region or sector, reflect hedged positions.6 Dollar and Kraay, (2001), "Growth is Good for the Poor", Policy and Research Working Paper, the World Bank.7 Kraay, (2006), "When is Growth Pro-Poor? Evidence from a Panel of Countries", Journal of Economics, Vol 80, pp198-227.8 “Global Monitoring Report” (2007), IBRD and the World Bank.9 IFC “2008 Annual Report: Creating Opportunities”.10 www.unctad.org11 www.fdi.net 12 www.oecd.org 13 Academic research indicates associations between economic growth and poverty reduction, though the extent of the association varies greatly according to country circumstances. See ODI, 2008,

“Pro-Poor Growth and Development”. Poverty reduction can not be constrained if the enabling social conditions for sharing the proceeds of growth are not in place, and may take many years to have adiscernible impact.

14 Ray, Debraj (1998). “Development Economics”. Princeton: Princeton University Press.15 According to comparable World Bank statistics using 2005 Purchasing Power Parity and $1.25/day poverty line.16 An association of more than 20 international commercial banks which provide finance for projects in emerging markets. See www.equator-principles.com17 According to the Roll Back Malaria partnership, www.rbm.who.int18 107 out of 681 companies, 12 of the companies covered by one of the evaluations were in a fully exited fund which accordingly are no longer part of CDC’s current portfolio.19 38 portfolio companies in India, six portfolio companies in China and 21 portfolio companies in other Asian countries.20 The Best Practice and Development Committee, BPDC, which is composed of a sub-set of CDC’s board members and is chaired by Professor Jonathan Kydd.21 As explained in the section “CDC’s new Monitoring and Evaluation (M&E) system”, development outcome is a collective, judgment based rating of each fund’s performance according to the four

underlying performance dimensions financial performance, economic performance, ESG performance and private sector development.22 The International Labour Organisation (ILO) “In search of a new indicator for labour market analysis: The labour dependency ratio and the labour dependency ratio+”, 23 Companies in the industry and materials sector, excluding mining.24 EBITDA is an acronym of Earnings Before Interest, Taxes, Depreciation and Amortisation, and is a common accounting measure of corporate profitability. 25 Excluding the seven microfinance funds in CDC’s portfolio.26 According to the Nigerian Communications Commission, www.ncc.gov.ng/index5.htm27 World Bank website: “Regional brief sub-Saharan Africa”, www.worldbank.org28 Employment data was reported by 190 of CDC’s 261 portfolio companies in sub-Saharan Africa during 2008. Data may be from different points in time. Some data may refer to contracted or in other ways

non-permanent workers. 29 Tax data was reported by 100 of CDC’s 261 portfolio companies in sub-Saharan Africa during 2008. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the data

reported referred to taxes payable. 30 2008 statistics from the International Labour Organisation (ILO), www,ilo.org31 “Doing Business 2009”, World Bank and IFC publication.32 Centre for Global Development: “Power and Roads for Africa”, 2008.33 Actis Energy Fund 1 54% shareholding in Songas; CDC 100% share of Actis Energy Fund 1.34 Actis Africa Fund 1 60% shareholding in DFCU; CDC 100% share of Actis Africa Fund 1. 35 Actis Infrastructure Fund 2 100% shareholding in Empower; CDC 100% share of Actis Infrastructure Fund 2.36 Actis funds 15% shareholding in Diamond Bank, CDC 93% share of Actis Africa 2, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa. CDC shareholding 6%

through co-investment.37 Data on growth/decrease in employment, turnover and EBITDA was available for 47 of the 54 portfolio companies in sub-Saharan Africa that were included in the evaluations.38 Employment data was reported by 281 of CDC’s 348 portfolio companies in Asia. Data may be from different points in time. Some data may refer to contracted or in other ways non-permanent workers. 39 Tax data was reported by 257 of CDC’s 348 portfolio companies in Asia. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the data reported referred to taxes

payable.40 “2009 World Development Indicators”, preliminary estimate as of November 2008, World Bank publication. 41 “2009 World Development Indicators”, World Bank publication.42 Department for International Development website: Country profile, India.43 World Bank poverty statistics. See graphs at p.7 of this report.44 Actis 63% shareholding in Paras Pharmaceuticals; CDC 12% share of Actis Emerging Markets Fund 3, 31% share of Actis India Fund 2, 20% share of Actis India Fund 3 and 91% share of Actis South Asia

Fund 2.45 AIF Capital Asia III 0.3% shareholding in Bharti Infratel Indus; CDC 10% share of AIF Capital Asia III, CDC shareholding <1% through co-investment.46 Actis 87% shareholding in Teknicast; CDC 70% share of Actis Asean Fund 2. and 26% share of Actis Umbrella Fund. 47 Actis funds 1% shareholding in the National Stock Exchange of India; CDC 31% share of Actis India Fund 2 and 91% share of Actis South Asia Fund 2.48 Data on employment growth / decrease was available from 38 of the 65 portfolio companies in Asia covered by the evaluations. Data on turnover growth / decrease was available from 49 of the 65

portfolio companies. Data on EBITDA growth / decrease was reported by 50 of the 65 portfolio companies.49 Employment data was reported by 24 of CDC’s 45 portfolio companies in Latin America. Data may be from different points in time. Some data may refer to contracted or in other ways non-permanent

workers.50 Tax data was reported by 22 of CDC’s 45 portfolio companies in Latin America. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the data reported referred to

taxes payable.51 Actis Latin America Fund 1 30% shareholding in Regal Forest; CDC 100% share in Actis Latin America Fund 1. 52 International Financial Participation Trust debt investment in Nextel Brazil; CDC 27% share in IFPT.53 CDC though International Financial Participation Trust 10% shareholding in Capsa Diadem, CDC 27% share in IFPT. 54 “World Development Indicators 2008”, World Bank publication.55 Employment data was reported by 19 of CDC’s 27 portfolio companies in North Africa during 2008. Data may be from different points in time. Some data may refer to contracted or in other ways

non-permanent workers.56 Tax data was reported by 12 of CDC’s 27 portfolio companies in North Africa during 2008. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the tax data

referred to taxes payable.57 The countries of North Africa and the Middle East are often grouped together as there are many socio-economic similarities between the countries in these regions. World Bank data is aggregated across

this region.58 International Labour Organisation 2008 statistics for the Middle East and North Africa regions.59 Actis Africa Fund 1 has a shareholding in Orascom; CDC 100% share of Actis Africa Fund 1.60 CVCI Africa Fund LP has a shareholding in Amoun Pharmaceuticals; CDC 100% share of CVCI Africa Fund LP.61 Actis total 60% shareholding in Sinai Marble; CDC 93% share of Actis Africa Fund 2, CDC 26% share of Actis Umbrella Fund & 10% share of Canadian Investment Fund for Africa.62 The World Bank, “Energy Access”, www.worldbank.org63 Jamal Saghir, director for energy, transport and water at the World Bank as quoted in a Reuters article; “Africa needs US$31bn a year for energy”.64 www.songas.com65 Global Environment Fund: “2008 Annual Environmental and Social Performance Report”.66 Actis has a shareholding in WSP Holdings Ltd; CDC 40% share of Actis China Fund 2 and 26% share of Actis Umbrella Fund.67 Actis 35% shareholding in Gulf of Guinea Energy Limited; CDC 93% share of Actis Africa Fund 2, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa.68 According to data from the Indian mobile telephony industry organisation Cellular Operators Association of India, or COAI. 69 “Global Capital, Local Impact: Facilitating Africa’s Development One Company at the Time”, ECP Private Equity, 2008.70 African Capital Alliance 3% shareholding in MTN Nigeria; CDC 33% share in CAPEM and 17% share in CAPE II. 71 Helios Investors 15% shareholding in Africa Tel, Angola; CDC 20% share in Helios Investors.72 Baring India Private Equity Fund III 5% shareholding in MphasiS Limited; CDC 9% share of Baring India Private Equity Fund III.

Footnotes

Footnotes 95

73 International Financial Participation Trust debt investment in Nextel Brazil; CDC 27% share in IFPT.74 UNDP; “Creating value for all: Strategies for doing business with the poor” (July 2008). 75 DFID; “The Impact of the Financial Sector on Economic Development” Studies in Comparative International Development (SCID), 2007, and “The Importance of Financial Sector Development for Growth

and Poverty Reduction”, 2004. 76 www.act.is77 www.dfcugroup.com78 www.diamondbank.com 79 www.alexanderforbes.co.za80 Actis 12% shareholding in Alexander Forbes; CDC 93% share of Actis Africa Fund 2, 100% share of Actis Africa Empowerment Fund, 26% share of Actis Umbrella Fund and 10% share of Canadian

Investment Fund for Africa: Ethos Private Equity Fund V LP.81 Helios Investors LP 25% shareholding in Equity Bank, CDC 20% share of Helios Investors LP.82 Robinson, Marguerite S, “Microfinance: the Paradigm Shift from Credit Delivery to Sustainable Financial Intermediation”, in Mwangi S Kimenyi, Robert C Wieland and J D Von Pischke (eds), 1998, “Strategic

Issues in Microfinance”, Ashgate Publishing: Aldershot.83 The ‘bottom of the pyramid’ is a common reference for the largest, and poorest socio-economic group. In global terms, this is the four billion people who live on less than US$2 per day, typically in

developing countries.84 Minlam Microfinance Offshore Fund debt investment in MFBA; CDC 49% share in Minlam Microfinance Offshore Fund: Access Bank debt investment in MFPB, CDC 16% share in Access Holdings AG.85 India Financial Inclusion Fund debt investment in Equitas Micro India Private Limited; India, CDC 35% share of India Financial Inclusion Fund.86 India Financial Inclusion Fund debt investment shareholding in a Little World Private Limited; CDC 35% share of India Financial Inclusion Fund.87 Actis Assets Fund 1 debt investment in Mozal; CDC 100% share in Actis Assets Fund.88 Actis Africa Fund 2 6% shareholding in Mineral Deposits; CDC 93% share of Actis Africa Fund 2: Canadian Investment Fund for Africa 2% shareholding in Mineral Deposits Limited; CDC 10% share of

Canadian Investment Fund for Africa: African Lion 22% shareholding in Mineral Deposits Limited; CDC 16% share of African Lion 2: ECP Africa Fund II 5% shareholding in Mineral Deposits Limited; CDC9% share of ECP Africa Fund II.

89 Actis Empowerment Fund debt investment in Moepi Platinum Ltd; CDC 100% share of Actis Empowerment Fund.90 Actis Africa Fund 3 4% shareholding in Copperbelt Minerals: CDC 35% share of Actis Africa Fund 3: Actis Emerging Markets Fund 34% shareholding in Copperbelt Miinerals; CDC 12% share of Actis

Emerging Markets Fund 3: African Lion 1 0.1% shareholding in Copperbelt Minerals; CDC 27% share of African Lion 1: African Lion 24% shareholding in Copperbelt Minerals; CDC 16% share of AfricanLion 2: African Lion 3% shareholding in Copperbelt Minerals; CDC 19% share of African Lion 3: CDC 3% shareholding via co-investment in Copperbelt Minerals.

91 According to the United Nations Industrial Development Organisation (UNIDO) www.unido.org 92 www.dalmiacement.com 93 Actis Africa Fund 3 16% shareholding in Alstom Electrical Industries; CDC 35% share of Actis Africa Fund 3: Actis Emerging Markets Fund 3 18% shareholding in Alstom Electrical Industries; CDC 12%

share of Actis Emerging Markets Fund 3. 94 Actis 25% shareholding in Savcio; CDC 93% share of Actis Africa fund 2, 100% share of Actis Africa Empowerment Fund, 26% share of Actis Umbrella Fund, 10% share of Canadian Investment Fund for

Africa: Sphere Fund 1 Partnership 4% shareholding in Savcio; CDC 5% share of Sphere Fund 1 Partnership. 95 Actis 88% shareholding in Ceylon Oxygen; CDC 91% share of Actis South Asia Fund 2 and 26% share of Actis Umbrella Fund.96 Actis 35% shareholding in TEMA; CDC 91% share of Actis South Asia Fund 2, 31% share of Actis India Fund 2 and 26% share of Actis Umbrella Fund.97 www.act.is98 www.grainbulk.com99 Actis Agribusiness Fund 77% shareholding in Kilombero Valley Teak; CDC 100% share of Actis Agribusiness Fund.100 Actis Agribusiness Fund has a shareholding in Grain Bulk Handlers; CDC 100% share of Actis Agribusiness Fund.101 Actis Agribusiness Fund 77% shareholding in Equatoria Teak Company; CDC 100% share of Actis Agribusiness Fund.102 CDH China Fund III 10% shareholding in Shuanghui International Holdings; CDC 5% share in CDH China Fund III LP.103 ECP Africa Fund III 21% shareholding in Thunnus Overseas AS France; CDC 23% share in ECP Africa Fund III.104 www.imf.org105 Actis 45% shareholding in Fuel Logistics; CDC 100% share of Actis Africa Empowerment Fund, 93% share of Actis Africa Fund 2, 26% share of Actis Umbrella Fund and 10% share of Canadian

Investment Fund for Africa.106 Actis Latin America Fund 1 30% shareholding in Regal Forest; CDC 100% share in Actis Latin America Fund 1. 107 Actis 10% shareholding in UAC of Nigeria: CDC 93% share of Actis Africa Fund 2, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa.108 Actis funds 10% shareholding in Ambow: CDC 40% share of Actis China Fund 2, 51% share of Actis China Fund 3, 12% share in Actis Emerging Markets Fund 3 and 26% share of Actis Umbrella Fund.109 Actis funds 51% shareholding in Xiabu Xiabu; CDC 40% share of Actis China Fund 2, 51% share of Actis China Fund 3, 12% share in Actis Emerging Markets Fund 3 and 26% share of Actis Umbrella

Fund.110 Global Data Monitoring Information System, the World Bank Group www.worldbank.org111 Data from the World Bank www.worldbank.org112 CITIC Capital China Partners Fund 1 16% shareholding in Harbin Pharmaceuticals; CDC 6% share of CITIC Capital China Partners Fund 1.113 Actis funds 50% shareholding in Sterling Add-life; CDC 31% share of Actis India Fund 2, 91% share of Actis South Asia Fund 2, 26% share of Actis Umbrella Fund.114 Actis 33% shareholding in Veeda Clinical Research; CDC 31% share of Actis India Fund 2, 91% share of Actis South Asia Fund 2, 26% share of Actis Umbrella Fund.115 Global Economics Paper 174: “A Small Price to Pay: Financing Africa’s Infrastructure”, October 2008.116 Actis 100% shareholding in Capital Properties; CDC 100% share of Actis Africa Real Estate Fund.117 Helios Investors LP 15% shareholding in Helios Towers; CDC 20% share of Helios Investors LP.118 Actis Fund 85% shareholding in ICH Properties Holdings Ltd; CDC 100% share of Actis Africa Real Estate Fund.119 CMIA China Fund II 19% shareholding in Chongqing Real Estate Development Co Ltd; CDC 10% share of CMIA China Fund III.120 ”Clean Energy Trends 2008”, The CleanEdge Report www.cleanedge.com121 The International labour organisation (ILO), “Green jobs, Facts and Figures” www.ilo.org.122 Actis 100% shareholding in Umeme: CDC 100% share of Actis Energy Fund 1.123 CDC 2% shareholding in Moser Baer through co-investment.124 Capital Today China Growth Fund LP 18% shareholding in DeQingYuan Agricultural Technology Co ltd; CDC 11% share in Capital Today China Growth Fund LP: Global Environmental Emerging Market

Fund III 16% shareholding in DeQingYuan Agricultural Technology Co ltd; CDC 12% share of Global Environmental Emerging Market Fund III.125 Kendall Court Mezzanine (Asia) Fund 1, LP 4% shareholding in MyFuel Ltd, CDC 30% share of Kendall Court Mezzanine (Asia) Fund 1, LP.126 IDFC Private Equity (Mauritius) Fund II has a shareholding in PV Technologies India Ltd, CDC 6% share of IDFC Private Equity (Mauritius) Fund II.127 “From poverty to prosperity: understanding the impact of investing in small and medium enterprises”, published by the Small Enterprise Assistance Facility.128 Nine of Aureos’ 89 portfolio companies have been excluded from this count, as they employ more than 1000 employees. These nine large Aureos’ investee companies employ 47,000 people among them.


Whilst we have used our reasonableefforts to ensure the accuracy of dataused in this report, certain data has notbeen audited or independently verified.Most of the data has been provided to usby our fund managers. Fund managersand portfolio companies have reviewedthe case studies specifically about them.Some fund managers, including Actis and Aureos, have commented moresubstantially on the report.

Data on employment and taxes paid hasbeen received from many but not all ofCDC’s portfolio companies. We havereceived this data from the fund managersthat have invested our capital (and thecapital of others) in these businesses.Data may be from different points in time. Employment data may sometimesinclude contract workers and other non-permanent workers. Tax data mostlyrefers to corporate taxes paid in 2007 by CDC’s portfolio companies, but maysometimes refer to taxes payable for 2008.

Data on employment and taxes paid, aswith all other data, in this report save foraudited financial data, should be read asindicative of magnitude rather than exactfigures. We have therefore rounded alldata in a conservative manner. We haveavoided extrapolations, which wouldshow estimated data for CDC’s entireportfolio, in order to keep quoted figuresas close as possible to the information wehave received from our fund managers.

Unless otherwise stated the financial data and valuations contained in this report relate to the year ended 31 December 2008.

Any errors or omissions are regrettablebut, as with any report based on extensivedata received from third parties indeveloping countries, difficult to avoidentirely. CDC will continue to seek toimprove its efforts to ensure data qualityand enrich its knowledge managementsystems in future.

Data disclaimer

Fund managers

Global

Actis www.act.is

Aureoswww.aureos.com

Cordiant Capitalwww.cordiantcap.com

Global Environment Fundwww.globalenvironmentfund.com

Africa

Adlevo Capitalwww.adlevocapital.com

Advanced Finance and Investment Groupwww.afigfunds.com

African Capital Alliancewww.aca-web.com

African Lionwww.afl.co.za

Business Partnerswww.businesspartners.co.za

Citigroup Venture Capital Internationalwww.citigroupai.com

ECP Africawww.ecpinvestment.com

Ethos Private Equitywww.ethos.org.za

GroFinwww.grofin.com

Horizon Equitywww.horizonequity.co.za

Helios Investment Partnerswww.heliosinvestment.com

I&P Managementwww.ip-mngt.com

Medu Capitalwww.meducapital.co.za

Sociéte Générale Asset Managementwww.sgam-ai.com

Sphere Holdingswww.sphereholdings.co.za

Travant Capitalwww.travantcapital.com

Tuninvestwww.tuninvest.com

Vantage Capitalwww.vantagecapital.co.za

Microfinance

Access Holdingwww.accessholding.com

Advanswww.advansgroup.com

Caspian Capital Partnerswww.caspianadvisors.com

CMIMCwww.catalyst-microfinance.com

Minlam Asset Managementwww.minlam.com

Shorecap Internationalwww.shorecap.net

Asia

AIF Capitalwww.aifcapital.com

Centras Capital Partnerswww.centrascapital.com

JS Private Equitywww.js.com

Kendall Courtwww.kendallcourt.com

Lombard Investmentswww.lombardinvestments.com

Navis Capital Partnerswww.naviscapital.com

Saratoga Capitalwww.saratogacapital.com

India

Ambit Pragma Ventureswww.ambitpragma.com

Avigo Capital Partnerswww.avigocorp.com

Baring Private Equity Partners Indiawww.bpeindia.com

BTS Investment Advisorswww.btsadvisors.com

ICICI Venturewww.icici.venture.com

IDFC Private Equitywww.idfcpe.com

India Value Fund Adviserswww.ivfa.com

Kotak Mahindra Groupwww.kotak.com

Lok Capitalwww.lokcapital.com

New Silk Route Advisorswww.nsrpartners.com

Ventureastwww.ventureast.com

China

Capital Todaywww.capitaltoday.com

CDH Investmentswww.cdhfund.com

CITIC Capitalwww.citiccapital.com

CMIA Capital Partnerswww.cmia.com

FountainVest Partners (Asia)www.fountainvest.com

Keytone Capital Partners–

Legend Holdingswww.legendcapital.com.cn

Qiming Venture Partnerswww.qimingventures.com

Tripod Capital Internationalwww.tripodcapital.com

Latin America

Advent International Corporationwww.adventinternational.com

Altra Investmentswww.altrainvestments.com

Nexxus Capitalwww.nexxuscapital.com

Patria Banco De Negocioswww.bancopatria.com.br

CDC Group plcCardinal PlaceLevel 280 Victoria StreetLondon SW1E 5JL

T: +44 (0)20 7963 4700F: +44 (0)20 7963 [email protected]

development report final 2009

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